The phrase ‘cutting off the nose to spite the face’ supposedly comes from a period when women would disfigure themselves and their children in order to stop being carried off by marauders. The phrase has evolved to now mean harming one aspect of yourself at the expense of the rest of you.
Every time you read a piece about the likelihood of Britain voting to leave the European Union, that idiom gets tossed around. Hurting yourself to punish someone else. Injuring yourself in the act of revenge. It evokes images of pain, of needless suffering, of a desperate action forced on someone by someone else.
Proponents of Britain’s exit (the ‘Brexit’) like London’s mayor Boris Johnson insist that Britain can prosper without the EU. Johnson argues the EU is a straitjacket for innovation and trade growth. Every model run tells us the disconnection of Britain from the EU would harm the growth of its economy, and by extension, ours. Every one. We have a very clear hypothesis to test. Someone’s hypothesis will be wrong.
Brexit represents the largest risk I can see to the Irish economy over the coming year. There are others, most obviously our own multinational tax policy, but were Britain to vote to leave, Ireland’s recovery would end, more or less on the spot.
And what a recovery it has been.
Ireland’s GDP grew by 7.8 per cent in 2015. This is the strongest annual GDP growth rate since 2000 and the strongest growth rate in the EU. The level of economic activity was 9.2 per cent higher than in the same period a year earlier. Most importantly, in 2015, domestic demand made its strongest positive contribution to growth since the global financial crisis began.
In 2009, Irish consumers spent about €85 billion. In 2015, they spent €92 billion. Investment in capital goods was around €36 billion. In 2015, it was €45 billion. The government is spending about €2 billion less in 2015 than the €30 billion it spent in 2009, thanks to years of austerity, but Ireland’s net exports have almost doubled, from €23 billion to €45 billion.
It’s not all doom and gloom. Say our net exports collapsed back down to the 2009 level. Hold everything else equal. Irish GDP would still be about €190 billion, roughly what it was in 2014. Growth for 2016 and 2017 would be largely wiped out.
I have to say I’m very sceptical of that net exports figure of €45 billion for 2015. I worry that, in its components, we are seeing evidence of a very weak euro improving our competitiveness, very low oil prices making all of the inputs to our production processes cheaper, and the results of multinational tax arbitrage. All three of these factors are temporary, and the benefits they convey upon our economy could leave as quickly, and with as little explanation, as they have arrived.
You don’t plan for your pension based on €100 you find on the road. The volatile nature of the state’s finances, and the highly open nature of our economy, means we should be highly, highly attuned to developments abroad.
Yet read our news. With the honourable exception of this paper, very few other papers or news outlets devote any time to the international arena, to the risks associated with China, the Middle East, Brexit, or the Transatlantic Trade and Investment Partnership (TTIP). These are factors we must understand and work either for or against based on our national interest. Instead we have spent the months since January asking whether Micheál will get into bed with Enda. Our national conversation is a mix of Father Ted and Gossip Girl.
(Yes I’ve watched Gossip Girl. Don’t judge me).
The nation is currently not being governed. Civil servants, who are, in my direct experience, very hardworking and intelligent people, have been watching and waiting to receive their directions from a government which hasn’t been doing any real governing since before Christmas. It is now March. Say Kenny and Martin do a deal by April 10. It will be May before anything of substance gets decided. And then it will be summer, and time for the Dáil to have a rest. Then in August comes both the solstice and the annual pre-budget dance. The ability of the state to govern on economic and social matters is subject to a number of considerable lags.
And these risks just haven’t gone away. So we stand in a moment in our nation’s history where a caretaker government faces a highly volatile international situation, with a civil service unable to govern and a domestic recovery in full flow. Another year should see unemployment fall below 8 per cent and perhaps touch 7 per cent, migrants returning and a capital programme move into full swing to alleviate the housing problem. But that’s if the international situation remains as is. And there’s no guarantee of that.
You might ask, what a government in full control of itself could do about something like Brexit. How about urging every Irish person with a vote in Britain to vote to stay? How about directly lobbying those in Britain who want to leave? How about putting in place policies to buttress the economy against a possible Brexit?
Government can do a lot. Right now, at least when it comes to Brexit, without a government Britain might cut off our nose to spite its face.