G Day Looms
Every now and then a really remarkable thing happens in the media. This week the Scotsman newspaper published a decent article. To mark the occasion we publish it in full (hat-tip to Joe Middleton for the scoop). MARC COLEMAN claims Scottish Secretary Jim Murphy was wide of the mark with his ‘arc of insolvency’ remarks
I DON’T know which is more shocking about Jim Murphy’s recent comments on Ireland’s economy. As Secretary of State for Scotland, presumably carrying a degree of responsibility for managing Scotland’s economy, the incompetence is staggering. More shocking still is the use of megaphone diplomacy – for the most selfish of political reasons – at such a sensitive time, when loose talk by politicians can do damage.
Last week, Mr Murphy accused the Scottish Government of making “petty, part-political jibes” about the global crisis. He said: “Now look what’s happening to those countries – Ireland in recession, Iceland really struggling. The UK is the fourth-largest economy in the world. We get great strength from that and these other countries the SNP try to compare Scotland to – Ireland, Iceland and others – they’re struggling remarkably.”
But let me put my native pride aside and get down to the real issue: the economic illiteracy revealed in Mr Murphy’s comments.
In contrast to Alex Salmond, the SNP leader, and George Osborne, the Tory shadow chancellor – both of whom have visited Ireland to look at our economy – Mr Murphy hasn’t bothered to study what is going on in Ireland, nor in his own country.
Equating Iceland with Ireland is very wide of the mark. There may only be one letter of difference in the spelling, but Mr Murphy should look behind that to spot some very important differences.
Three Icelandic banks have been declared bankrupt, leaving UK depositors in dire straits. In Ireland, swift and decisive action by Ireland’s government has protected our bank deposits, but also those with UK Post Office Savings Bank, which is owned by Bank of Ireland, not to mention the Irish subsidiaries or arms of five other UK-based banks.
At 25 per cent, Ireland’s debt-to-GDP ratio is the second-lowest in the European Union. At most, recapitalising our banks will add seven percentage points to that, bringing it to perhaps the fourth-lowest. If there is one thing Ireland isn’t, it’s insolvent.
Unlike Iceland, Ireland’s euro membership protects us from exchange-rate pressures and limits the risk premiums paid on government debt. EU and euro membership, plus a business-friendly tax regime, makes Ireland a world beater in foreign direct investment and a home to leading high-technology multinationals. Add a booming indigenous traded services sector to that, and we have a very different story to our colder island neighbour to the north.
But even if Iceland faces problems, which independent nation doesn’t from time to time? Isn’t it better for a nation to make and correct its own mistakes, rather than remain in a state of permanent policy dependency on others?
The answer to that question depends on how confident you are in yourself. Scotland’s genius has given the world the television, the telephone, penicillin, much modern industrial practice and, of course, the science of economics. The idea that this nation cannot successfully manage its economic interdependency with the rest of the world is, to me, laughable.
Far from there being an “arc of insolvency”, the real arc here is an “arc of indifference”, encompassing Northern Ireland, Scotland and Wales. In Northern Ireland, and despite both nationalists and unionists wanting the republic’s corporation tax rates (if not its republican government), Westminster imposes policies designed for the south of England. Scotland and Wales suffer the same. England also suffers through overcongestion and a huge tax subsidy.
Putting Scotland, Wales and Northern Ireland on a viable footing – letting them manage their economies – would not, of course, be in the political interest of politicians like Mr Murphy, who depend for their career advancement on the supplication and marginalisation of Scotland and Wales to Westminster. But it would be right for the people.
As for Ireland’s recession, Mr Murphy is, again, clueless. After 15 years of record-busting growth, some froth is being blown off the Guinness. But the glass remains very much almost full: Ireland’s economy grew by almost 90 per cent in the past ten years, four times faster than the EU and three times faster than countries in the Organisation for Economic Co-operation and Development (OECD).
Yes, we’ve had a property bubble – a bad Anglo-Saxon habit we’re in the process of kicking. When that’s done, by 2010, Irish GDP will have fallen four percentage points, but Ireland’s average economic performance in the first decade of the millennium will remain streets ahead of the EU, OECD and UK.
How did we do it? Following Labour’s disastrous management of the UK economy in the 1970s – which saw a once-proud Britain crawl cap-in-hand to the IMF – Ireland decided to embark on a strategy of monetary independence coupled with greater international economic interdependence. We broke the link with sterling and, while maintaining strong and friendly trading links with the UK, began to diversify our economic base more widely.
Membership of the euro in 1997 gave us access to a common currency area of 300 million people, a number now grown to more than 400 million. Since then, our population has increased from three million to 4.3 million. In my book The Best is Yet to Come, I draw a sad contrast between Ireland, where the all-island population will rise from more than six million to more than eight million by 2058, and Scotland, where population levels are falling and set to go below five million in the next few decades.
As well as increasingly positive interaction between its north and south, Ireland now enjoys excellent relations with the peoples of England, Scotland and Wales. The reason for this is the same as the reason why, even after our recession is over, we will remain one of Europe and the world’s richest nations: we don’t allow Westminster to appoint the likes of Mr Murphy to run our affairs.
• Marc Coleman is a former economist at the European Central Bank. He is economics editor of the Dublin radio station Newstalk.