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Budget 23 misses the bigger picture

The dust of Budget 23 has more or less settled. It was large in scale – some €11 billion. It was small in the extent to which it will protect Irish families and Irish small business against the inexorable rise in the cost of living and of inputs, facing into the winter and beyond. Worse, it fosters the illusion that our biggest problems can be resolved with fiscal largesse, courtesy of inflows into the Irish Exchequer from mobile US multinationals.

 

FISCAL LARGESSE

The backdrop to Budget 23 was a seeming robust Irish macroeconomic profile, especially compared with the wider EU. The data on growth, the labour market and fiscal balance that ostensibly backstopped Budget 23 was impressive. Importantly, Ireland’s debt profile, notably its maturity profile and prefunding, has been astutely managed over the years by the NTMA, who deserve much credit.

However, what has become evident, even before the ink on the Budget Briefings and Pressers was dry, was that inflation had offset the cost of living ‘giveaways’ in the Budget. The increase in State pensions, for example, are still months away but prices are  increasing in real time.  Inflation is being driven by cost pressures but also expectations that are now embedded within the wage setting process. The cut in student fees was welcome and long overdue. But at the end of the day what most students want when they graduate is a home, a family and a life in their own country.

The most recent, post-Budget, forecasts of the Central Bank make for sombre reading, with downward revisions in growth and increases in forecasts for inflation.Its the same story in the UK and across Europe. The IMF has been clear from the onset that the global economy, including the EU, is heading into serious headwinds. There are large parts of our world that are in desperate straits, largely – not wholly but largely – because of war and policy failures on the European subcontinent.

AFFORDABILITY

In Ireland, the ‘affordability’ of homes is being savaged, caught in a pincer movement of rising interest – and therefore mortgage rates –  and disposable incomes eroded by inflation.

Mortgage offerings have been eviscerated by banks.The calculations now confronting would-be homebuyers are being reworked and, in many cases, found wanting. Repetition has immunised people against what has been happening. Increases in housing completitions have been sequestered by overseas investment intermediaries. A generation is being herded into apartment blocks that are not designed around children and young families. Others are outside, looking in, trying to figure out where the Central Bank criteria, and preemptive publicly-funded housing allocation, leaves them. The maths of home ownership in Ireland don’t add up.

For a decade the European Central Bank (ECB) and its counterparts across the West frenetically sought to increase inflation. Finally, awash with liquidity and ‘free’ money, and dazzled with low and even negative interest rates, they succeeded in igniting asset bubbles in housing, and across financial markets.

Now the same Central Banks who poked the inflation bear and then assured consumers that it was just ‘a transitory thing’, are taking another momentous gamble. They are betting – because that’s what it amounts to – that they can bring inflation back under control by rapidly pushing interest rates  higher without causing the mother of all recessions and massive collateral damage to the whole financial infrastructure of the West, which is already creaking. They can’t.

A transition to ‘normal’ interest rates was necessary and inevitable. But it has been accelerated to warp speed. The damage is all around us.Bloomberg recently pointed out that the ECB is adhering to severe monetary tightening, following the Fed, while “setting aside forecasts that hindsight shows to be wildly optimistic. Inflation in the past quarter was more than triple what officials projected in December”. It makes no sense other than as an epic gamble.

The problems of the EU and the West have been made worse by unleashing a ‘sanctions regime’ that, again, was neither modelled nor measured. In effect, a monetary meltdown has been enveloped in a global supply- side crisis, triggered by a war that politicians failed to anticipated and sanctions that nobody worked through. It’s not up for critiquing or questioning, not least because of political and media revisionism on a massive scale.

War is a moral evil and represents a political failure. Equally, sanctions are usually a two-edged sword that, as the IMF has pointed out, are damaging Europe and the global economy. When it became clear that some EU countries were far more vulnerable than others, and at risk from an energy pricing system that was daft, EU Representative Josep Borrell had the insight to acknowledge that: “We cannot put on the table proposals that do not fit with reality.”

Ireland’s reality is that the ECB and the EU Commission have, once again, been proved fallible in their forecasts and in their policies. Neither have regard for the national interest of small member states like Ireland. Why would they Hungary has demonstrated just how important it is to have, and to adhere, to national values and to stand up for these values in Europe and for the national interest. There are not well liked by Brussels for it and yet one cannot fail to be impressed by the analysis of their President Katalin Novack in her Inauguration address earlier this year. Families are the cornerstone of the Hungarian economy. and central to the Budgetary and wider fiscal process. Hungary’s support for displaced Ukrainian families is exemplary. At the same time, they affirm their national interest calmly and without fear. They are not much liked in Brussels but they are not afraid to stand by their national interests. Ireland likes to be liked too much, especially by Brussels. If, like Germany, you have unlimited borrowing power in the markets and a €200 billion budget line, then you are reasonable inured against the cold winter that is knocking on all of our doors. Ireland is not so inured.

We are most likely dependent, once again, on the good offices of the UK which is, itself, in energy deficit. The institutions to which we are beholden have made calamitous mistakes. The globalist ideology – the authoritarian ‘populism’ – which presses down on countries is alien to growing numbers of Europeans. Angela Merkel herself acknowledge this at the EU Summit last October. The well-funded and deeply  disingenuous militarist Agenda towards which Ireland is being impelled by its present Government is contrary to the spirit of the constitution and the convictions of the majority of Irish people.

We are ‘good Europeans’. Our Budgets are underwritten by global corporate hegemonists. We have no intention, much less a Plan, to protect our neutrality or to affirm our national interests in Europe.  Or to keep us warm in winter. We can rely on Europe to affirm peace and prosperity can’t we? The takeaway is that neither the Government or its Budget  will protect Ireland from hard times or from war, and its consequence’s. Nor from arrears and repossessions. Only rekindling the values we have so casually ceded will do that.

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