EDITORIAL : THE INDEPENDENT, IRELAND

 

IMF delivers the starkest message yet on all of our futures

AFTER one month in office, our new Government finds itself confronted with an economic crisis more daunting than any it had anticipated. It is encapsulated in yesterday's report from the IMF, a long report which nevertheless can be summed up briefly in two points.

The IMF has halved its forecast for Irish economic growth. The new figure is a paltry 0.5pc, far below the healthy and sustained growth which is the only key to recovery.

Secondly, the IMF says that it will take "a long, long time" to know whether the austerity measures being implemented at present will work at all. In other words, we cannot know if and when our crisis will peak. The only certainty is that in the short term it will get worse, very much worse.

Faced with the direst warning yet of the direst situation yet, ministers in the new Government rallied and declared their determination to bring us through. But their manner was as gloomy as the underlying facts. And the only conceivable measures to hold the line will certainly inflict more pain than they ever expected.

They will also contradict assurances given during the recent general election campaign -- which now seems so remote. There can be no question of sparing taxpayers or maintaining public service pay and numbers.

Indeed, the Government now has no choice but to slaughter every sacred cow and wield the axe in every area that might once have been considered immune. That most likely includes social welfare.

If there is any encouragement in the IMF report, it consists of the information that Irish wages have fallen at a faster rate than those in the two other stricken European countries, Greece and Portugal. But that comes at a price, paid in several ways. Living standards and consumer power have been reduced. So has the ability to pay taxes. The Government's finances are in poor shape, but any increase in taxes risks bringing into operation the "law of diminishing returns".

That means, inevitably, that efforts must now be concentrated on reducing public spending. The obvious place to start is the Croke Park agreement. But that in turn raises another stark question, the evident inability within the unions and within the bureaucracy to face reality.

Amazingly, the "implementation body" charged with making the Croke Park deal work intends to compensate public sector workers whose pay has been cut by restructuring. This follows a Labour Court ruling which applies to one category of workers. Those affected will get 1.5 times the amount lost.

The Department of Finance describes this as standard practice. It is emphatically not standard practice in the private sector, where the alternative is job losses -- as so many private sector workers know to their cost. In our present circumstances, it borders on insanity. The reality, like it or not, is that both pay and numbers will have to be cut and that the remaining workers, especially those in administrative grades, will have to make heroic efforts to maintain standards of services. And the Croke Park deal must be revised, or scrapped.

On the taxation side, the choices are limited. The Government could bring in both property tax and water charges, but they could not be introduced immediately without considerable unfairness in the absence in the first case of proper valuations and in the second case of metering.

The IMF believes that we must increase taxes in the short term, in the hope of bringing them down in the medium term. That is optimistic and rather too cheerful by comparison with the general tone of the report. A similar criticism could apply to the organisation's view that a reduction in the interest rate on the EU-IMF bailout could be of some help. So it could, but if we get it, it will have a very limited effect.

There is now no scope -- not that there ever was -- for ignoring the drastic facts. At stake is nothing less than national survival. In that most vital of interests, nothing can be ruled out.

The challenge to the infant Government is immense. Ministers, experienced and inexperienced, must find in themselves a degree of courage and effort that they may not have known they possessed. They must take the people into their confidence. And the people at large must understand that the time for false optimism and deliberate ignorance expired long ago.