It won’t get as bad as Donohoe’s bleak ’80s recession flashback
FINANCE Minister Paschal Donohoe didn’t hold back when he spoke to members of the three political parties examining the formation of a new coalition government. The straight-talking Donohoe said we are looking at a situation where there may be an unemployment rate of 15pc for a few years to come, even after the pandemic has subsided.
The idea of coping with around 350,000 long-term unemployed is pretty shocking given the number of people unemployed in February was 120,000. Coping with an additional quarter of a million for several years will be costly and a huge economic setback.
Donohoe used the phrase “1980s recession”, which strikes fear into anyone who was around and was caught on the wrong side of the lost decade.
Some of us don’t have to look up re-runs of Reeling in the Years to get a shiver down our spines from what was economically a pretty awful time in Ireland.
It seems the most vulnerable sectors in the longer term will be retail, tourism and hospitality. Already we have seen regional differences when it comes to the hardest-hit parts of the country. We have also seen that some counties are more heavily dependent on tourism than others.
The social welfare bill, along with the forgone taxes, of having 350,000 people on the dole would be very challenging. However, where Donohoe is not quite right is when he compared the years ahead to the 1980s. Back then the capacity of our economy to create wealth and jobs was more limited.
We have made enormous strides in the make-up of the economy, our successes in foreign direct investment and the underlying creation of wealth that has happened.
Back in 1988, unemployment was around 15pc and our national debt was around 107pc of GDP. The population was a lot smaller and the capacity of the economy to generate wealth was a fraction of what it has become.
The Finance Minister may well be right about the challenges facing some sectors, including tourism, retail and hospitality, but the country has a better chance of cancelling out those painful losses in a post-coronavirus Ireland, than it did in the 1980s.
We got out of the mess last time by
fine-tuning our tax system to attract American multinationals, introducing some fiscal discipline and being able to offer international companies well-educated people who would do the job for less.
Our cost base advantages are not as strong. Our tax offering remains broadly intact, but won’t have the same clear-cut advantages it used to. The cost of living in Ireland is a lot higher than it used to be.
Nevertheless, the new government will find itself turning to IDA Ireland and foreign multinationals for a turbo-charged recovery.
This won’t do you much good if you are living in the wrong place or don’t have the requisite skills to avail of whatever jobs might come.
After the last financial crash, FDI accelerated our recovery but reaching record tourism numbers helped enormously in certain regions.
Among the longer-term consequences of the coronavirus will be an acceleration of a two-speed Ireland.
Flying off the handle
RYANAIR chief executive Michael O’Leary has decided to take court challenges to state bailouts of some of his European rivals.
He was in vintage form taking aim at Lufthansa “going around hoovering up state aid like the drunken uncle at the end of a wedding drinking from all the empty glasses. They can’t help themselves”.
I’d say it has been a while since O’Leary was at a wedding where anything like that happened, but we got the picture.
Ryanair is also out to topple France’s $8bn rescue package for Air France. The Irish airline has sued the European Commission twice this month, challenging its approval of French tax breaks, which it says will mainly benefit Air France and Sweden’s €455m loan guarantee for its airlines.
For O’Leary, this is all about what happens after the pandemic. In theory, as an airline with a strong balance sheet going into the crisis, it should be best-placed to benefit
from consolidation and growth through cheaper air fares. Yet, the opposite could happen. Subsidised airlines could use those state supports to fund consolidation themselves and support loss-making cheap fares during the crucial period when the industry is trying to get people travelling again.
The Ryanair CEO has talked about unbelievable cut-price fares to drive growth in the aftermath of the pandemic. He has overtaken Alitalia as the number one airline in Italy and has had a tough German market in his sights for some time. Alitalia is in line for state aid and the opportunity to really crack Germany could be stifled by a statesubsidised Lufthansa, instead of a massively weakened or even bust Lufthansa.
What is O’Leary to do? Fares will have to be high for a time after lockdown or airlines won’t make money due to higher costs, reduced schedules and flights that aren’t full.
Ryanair signalled it would return to up to 40pc of its normal flight schedule from July. This is extremely difficult to see happening.
If the airline were to go ahead, it would surely lose a lot of money. Part of this is around the psychology of flying. People will have to feel flying to a foreign country is safe and worth doing. By driving forward with a major schedule return, it creates the impression things are getting back to normal. Airlines like Ryanair and IAG want to get some momentum going. It is a reasonable marketing tactic and one which other airlines will use.
Ryanair has said it won’t be taking state support. O’Leary has a point when he says he will have to compete against a range of state subsidised airlines. Ryanair has taken its fair share of local state incentives in specific regions over the years but it must be frustrating to see the one big opportunity out of this disaster for Ryanair being taken away by national government interventions.
What were the French, Italian, Swedish and German governments to do? Let these strategically important businesses go under, thereby delivering reduced competition for their travelling public? This might have been the logic of the market, but it was never going to play out that way.
Port checks were inevitable
NO surprise that the British government has succumbed to the inevitable, namely that there will be port checks in Northern Ireland on goods coming in from Britain after Brexit.
Having said it wouldn’t happen, Boris Johnson signed a deal which meant it had to happen, and now a House of Commons committee has finally been told it will happen.
But what about goods going the other way? There shouldn’t be checks on goods going from Northern Ireland to Britain, unless they have originated south of the Border.
If the UK crashes out or has some kind of tariff regime between Dublin and London, surely goods brought across an open Border, parked in the North for a brief period and shipped to Britain, will be impossible to stop.
Who will want to anyway? If this is thoroughly policed, Northern businesses involved in import and export from and to Britain will face enormous additional costs.
The DUP should have gone with Theresa May’s backstop. It would have been a better deal for everybody.