3 8 March 2016
G
eneralelection2016roseupwithabangand
ranoutwithasizzle.Daysbeforethevoting
started and well before the results were
known,twosimplefactsoflifetookholdover
anyone’srosyexpectationsforthefutureas
heraldedbythepoliticalcampaigns-Left,Centreand
Right-oftheimaginarypoliticalspectrumthatdemar-
catestheinsularandparochialIrishintellectualmilieu.
Firstly,virtuallyeverypartyandeverycandidate,
saveforahandfulofdisparatevoices,havenowmoved
intoCelticTiger3.0mode:promisinglowertaxes,more
spendingandaperpetualandforever-strengthening
recovery.
Secondly,GE2016lackedpolicyideasaboutasmuch
astheSaharaDesertlacksrain.FiannaFáilandFine
Gael.Again.Butnowtogether.
TheGoverningCoalitionchosetodoaddressitselec-
toratefromtheperspectivethatpolicycontinuityand
stability(read:predictability)arethekeydriversfor
futuresuccess.ThechallengingandchallengedCentre-
Left,ledbyFF,tooktoatraditionalIrishoppositionalism,
shoutingloudly:“Notenoughbeingpromisedandeven
lessdelivered!”.SinnFéinoptedforthecomplacentand
comfortable“Wearenotthem,butwepromiseeven
more”line.
Onthefringesofthespectrum,wheresmallerparties
andtheIndependentsstruggledtogettheirvoicesout,
there were ideas, debates, ideologies, ideals and
un-Irish(atleastaccording
tothepoliticalelites’metric
ofauthenticity)integrityand
passion. This was the small
planetwhereoxygenowed,orbit-
ingtheDeathStarofthestatusquo.
Buttheplanetwasnotbigenoughorperhapsthe
oxygenjustinadequate.Anditwasnotaidedbythe
analysiscomingfrom‘outside’thepoliticstentsome-
wheredeepwithin.Thusanalystswhoareacademic
andunaligned(atleastostensibly)optedtoapplytheir
usualpolicymodelstotherawideasoftenadvocated
bythenewerpoliticalgroups.Onoccasionthisanalysis
wasoutrightpartisan,slatingandpraisingsimilarpro-
posals basedsolely on which partywas doing the
proposings.Attimes,thingsgotad hominem;attimes:
hysterical.Anexampleofthelatterwasaresearchnote
fromoneofIreland’spremierasse-managementcom-
paniesshoutingabouttherisksofpoliticalinstability
thatcouldbevisitedupontheIrisheconomyshouldthe
currentCoalitionbesupplantedbyaweakerformof
Eurogroupparrot.
Amidallthislow-browcircus,fewanalystsandeven
fewerpoliticalleadersbotheredtonoticejusthowout
of touch with the modern reality Irish politics has
become.Acountryof4.8millionpeople,drainedofits
power to inuence the course of Europe and self-
deprivedofitswilltochartanindependenteconomic
Celtic Tiger 3.0:
Yea
Election evoked no ideas
so why not just let’s bring
on another boom?
OPINION
by Constantin
Gurdgiev
INTERLOPER
Inside the head of an Irish politician
POST-ELECTION
March 2016 3 9
policyinthestyleof,say,Switzerlandoreven
DenmarkorHolland,Irelandisnownavigating
the high seasof global economic fortunes,
rudderless.
Asnotedpassimduringthe‘leaders’debates
ofGeneralElection2016,overhalfoftheIrish
recovery miracle of 2014-2015 was passed
downtousfromhighFrankfurt’sECBofces.
Eurodevaluation,negativegovernment-debt
yields,amplebankliquidityandhistoricallylow
interestrates.Togetherthebenecenceofser-
endipity has sustained our exports,kept in
checkourimports,underpinnedthetemporary
solvencyofourbanksandmaintainedacapon
mortgages and SME-debt arrears. About a
quarterofourCelticPhoenixstoryhasbeen
writtenbytheUSFedandtheeternal(wehope)
dysfunctionalityoftheUStaxationregimethat
enabledbothstrongdemandforMultinational
(MNC)productionoff-shoringfrom,andexports
on-shoringinto,NorthAmericafromIreland,
whileatthesametimedoingzilchtoreducethe
stonkingincentivesforIreland-boundtaxinver-
sions.Havingswallowedapropagandapillof
recovery,Irishconsumersunderwrotetherest
ofourgrowth,pushingupdomesticconsump-
tionandforgetting(fornow)thegargantuan
rockofdebtstillhangingaroundtheirnecks.
Alas,theproblemwiththeCelticPhoenix-
the very foundation of the Government’s
‘continuity=recovery’thesisandtheopposi-
tion’s‘tax-less-spend-more’ proposition -is
thatitsexistenceowesnearlyeverythingto
what happensoutside the DailandMerrion
Street. Having ignored the changing world
aroundus,ourpoliticaleliteshavenotonlycon-
rmedtheirprovincialandinsularnature,but
putatriskIreland’seconomyandsociety.This
willbecomeevidentinthenextyearortwo.
Letmeexplainwhy.
Recent mediaand pundit coverage of the
globaleconomy,andofadvancedeconomies,
hasfocusedontherisingdegreeofuncertainty
surrounding growthprospects for 2016and
2017.Muchoftheanalysisisweak,tendingto
replaythe clichés oftherisks of’monetary
policy errors’, ‘emerging markets rot’, and
‘energysectordrag’.Buttherealfourhorsemen
oftheeconomicapocalypseareloudlybanging
onourcastlegates.
Thesefourhorsemenare:
1
Supply-sidesecularstagnation(technology-
drivenproductivitygrowthslowdown);
2
Demand-side secular stagnation (demo-
graphicallydrivenslumpinglobaldemand);
3
Debtoverhang(thelegacyofboom,bustand
post-bustadjustments);and
4 Financialfragility(theriskofamajorcrisis
brewingwithinthehighlyinterconnected
andinterdependentglobalnancialsystem).
Inthisworldneithermonetarynorscalpoli-
cies, defined within the constraints of
traditionalpractices,work.Neithersupply-side
nordemand-sideeconomicsholdanyserious
answers.ToseethisconsiderJapan.ByKeynes-
ianstandards,thecountrywithGovernment
debtat248percentofitsGDPshouldbearoar-
ingsuccess.Allofthisstimulusshouldhave
producedatleastaspeckofsunshineonthe
Smaller parties
and Independents
represented the small
planet where oxygen
flowed, orbiting the
Death Star of the
status quo
2006
EUROPEAN CENTRAL BANK | BENCHMARK RATE
SOURSE:WWW.TRADINGECONOMICS.COM | ECB
2008 2010 2012 2014 2016
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4 0 March 2016
dourgrowthhorizon.Andbymonetarypolicy
standards,Japanshouldbearoaringsuccess
–theBankofJapanisnowrunningnegative
interest rates, having pio
-
neeredzero-boundratesin
February1999.Ithasabal
-
ance sheet (a metric of
quantitativeeasing)of76%
ofGDP.Alas,latestforecasts
put growth projectionsfor
Japan at 1% in 2016 and
0.45% in 2017. This is the
equivalent of firing up a
nuclearreactortogetkettle
boiling.
Next, consider the
‘stronger’ economic for
-
tress, the US ,to whose
fortunesIrelandiship-linked
throughour(er… not quite
OUR) exporters and inves
-
tors.Here,theCongressionalBudgetOfce’s
latestforecastisthattbebudgetdecitwillrise
from2.5percentofGDPin2015to3.7percent
by2020. None ofthis decitexpansionwill
result in any substantive investment in the
economy, because most of the projected
budget-decit increases will come from the
highercostofservicingtheUSfederaldebt.Key
driversoftheupsidethatwouldoccurbecause
ofthereductioninthecostofdebtinclude:
increasingdebtlevelsandinterestratehikes.
Actualdiscretionaryspendingthatisapproved
through the US Congress votes, excluding
spendingonentitlementprograms(Medicaid,
MedicareandSocialSecurity)willgodown,
from6.5percentofGDPin2015to5.7percent
ofGDPby2020.Now,remember-followingthe
crisis,theUSeconomyhasdeliveredthelarg-
estdeleveragingofallG7countries.Still,the
debtpileistoolargetocarrywithoutsuffering
theconsequences.
Whichprovesthat
debt overhang isa
bitch, even if
Keynesianists and
Irish politicians
think it is just a
cuddlypuppy…
Claudio Borio of
theusuallyconserv-
ativeandstaunchly
pro-statusquoBank
for International
Settlements (the
Central Bankers’Central Bank) agrees.In a
majorspeechlastmonth,Boriosummedupthe
“symptomsofthemalaise”afictingtheglobal
economy:excessivedebt, slow productivity
growthandlackofpolicy-manoeuvreroomfor
scalandmonetaryauthorities.Readerswill
nothaveheardanyofthisfromtheIrish‘lead-
ers’ debates or read it in political parties’
pamphlets.Borio’sresearchshowsclearlyhow
growingdebt levels inthe global corporate
sectorarenowstiinggrowthincorporateprof-
itabilityevenbeforethemajorityof Central
Banksareforcedtoreversetheirpoliciesand
switchtowardrate-normalisation,Fed-style.
ThekeytoBorio’sworkisthattheideaof
restartingtheglobal(orindeedEuropean)econ-
omybylaunchingintoanewcreditboomonthe
backoflowinterestratesandothermonetary-
policysupportsisnotonlyineffective,butis,in
fact,counter-productive.Yettheideaofcredit-
fuelled growth is at the heart of both the
European(ECB)andIrishpoliticalelites’world-
view. Worse, based on the IMF’s position
outlinedduringthelatestG20summitinFebru-
aryittooisaligningwiththesametheologyof
debt.Initspre-summitpositionpaper,theIMF
called for expanded government spending
(fundedbynewGovernmentdebt)tosupport
already-expansionary monetary policies to
boostglobaleconomicgrowth.
Facedwiththefourhorsemenoftheapoca-
lypse,Irishpoliticiansacrosstheentirepolitical
spectrumhaveunanimouslyoptedtoignorethe
bleakrealitiesoftherisksfacedbytheglobal
economy,byEurope,bytheUSand,indeed,by
Ireland.Insteadofdealingwiththenecessary
reforms of economic, political and social
spheres,IrishpartiesoftheLeftandtheRight
havelargelyspenttheGeneralElection2016
arguingwhocanleveragecurrentgrowthnum-
bersmoretodeliveragreaterboosttopublic
expendituresandsubsidies,whileproducing
deepercutstotaxburdens.Theaviarytheof
CelticPhoenixhasownthecoop.Thecircusof
CelticTiger3.0hasarrived.Andpredictably,no
onewantstohearthebadnews.
Again.
We’ve been lucky:
Euro devaluation,
negative government-
debt yields, ample bank
liquidity and historically
low interest rates but
are now rudderless
POST-ELECTION
Banking on Ireland

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