Endless effort, constant criticism and a great deal of disappointment: such is the lot that awaits whoever takes up the reins of government for the next five years, according to Leo Varadkar, even as he attempted to entice the Green Party and various independent TDs into a grand coalition.
But even the taoiseach’s gloomy outlook, as he spoke to RTE’s Prime Time last Tuesday night, was brighter than the projections of Paschal Donohoe, the finance minister, just a few hours earlier when he spoke to the media in Government Buildings.
Donohoe’s most optimistic baseline scenario — a three-month recession due to the coronavirus, with a “gradual recovery into the second half of the year” — was laid out in painstaking detail at the publication of the draft stability programme update (SPU), a usually staid item on the EU fiscal calendar.
According to the SPU, the Irish economy will shrink by 10.5% this year, causing a budget deficit of €23bn, or 7.4% of GDP. By the end of June, unemployment is set to spike at 22% — four points higher than in 1983, when emigration was at its height. It will average just below 14% across the full year, and is projected to fall below 10% next year.
“We are clearly now in the midst of a severe recession, both domestically and globally,” said Donohoe.
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“Our jobs market has transformed from a situation of full employment to one where unemployment has risen with a speed and scale that is completely unprecedented.”
Opting for full disclosure, Donohoe added: “Our projections assume that the current containment measures remain in place for 12 weeks [until mid-June] and that they are gradually eased thereafter. If not, then the economic effect will clearly be more severe.”
How much more severe? The SPU document says a delayed recovery could result in a deficit of up to €30bn this year — a massive leap from the €2bn surplus originally forecast. The decline in GDP could reach 13.75% if the recovery does not begin until mid-autumn, or 15.25% if it fails to kick in until next year, with grim ramifications for unemployment and national debt.
Michael McGrath, the Fianna Fail finance spokesman, said: “There is certainly a possibility that the economic picture could be worse than that set out in the SPU. The incoming government will be facing an enormous challenge and the reboot of the economy . . . has to be the first priority once we get beyond the public health emergency.
“The difficulty we all face is that the virus is likely to linger and remain in circulation, so it remains to be seen to what extent restrictions can be eased . . . I think our economic fate is very much linked to the future of the virus.”
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McGrath hoped the support of the ECB and EU institutions would be sustained over a prolonged period because Ireland could not rely on low sovereign borrowing rates indefinitely.
As Donohoe told journalists on Tuesday: “There is very considerable uncertainty attached to the [SPU] numbers. There are large risks . . . including a prolonged change in our economic circumstances depending not only on containment measures here at home, but of course containment measures in our main trading partners.”
In Brussels on Thursday, however, Charles Michel, president of the European Council, and Ursula von der Leyen, president of the European Commission, had to devise another EU fudge after weeks of division between prime ministers over whether proposed eurobonds, or non-maturing loans, should pay for economic recovery in member-state economies devastated by Covid-19.
According to Varadkar on Wednesday, there was a proposal “that would allow the European Commission to borrow on behalf of the EU as a whole [and] free up money that could be used to stimulate economies”. The loans would later be paid back at a European level.
Some countries do not want to pool borrowing capacity, the taoiseach pointed out. “Ireland is very much among those countries that believes that if there was ever a time for the European Union to stand together, ever a time for us to assemble our firepower and to mutualise some debt, now is the time.”
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McGrath backed Varadkar’s approach, arguing it was in Ireland’s interest that Italy and Spain did not face an insurmountable burden of debt. “Ireland needs a strong eurozone and a strong European economy, so our fortunes are inextricably tied to the strength of the European economy and the wider global economy,” he said.
“We need to continue to support those countries at a European level that are seeking much greater action to ensure that national budgets are sustainable and that funding can be accessed in the medium to long term on a sustainable basis. This issue is going to be dominating Eurogroup, Ecofin and EU council meetings for quite a while to come.”
In the Dail on Thursday, Labour Party leader Alan Kelly urged support for a compromise devised by Spanish prime minister Pedro Sánchez for a €1.5 trillion economic recovery fund financed by “perpetual” bonds that would never mature. To soften resistance from Germany, the Netherlands and Sweden, Sanchez proposed the fund would be a one-off instrument linked to the pandemic only.
“The logic is simple: no member state can recover while other member states are in deep recession,” said Kelly. “We all need to recover together to enable us to restore our previous levels of trade. The collective borrowing of money will allow for a lower interest rate, which will ease the difficulties being faced by indebted countries.”
Sanchez did not carry the day at last Thursday’s video conference of EU leaders, however, and the prime ministers delegated the outworking of the massive scheme to officials and finance ministers in the coming weeks.
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“There will certainly be a sound balance between grants and loans, and this is a matter of negotiation within the group of member states,” said von der Leyen.