Brian Cowen, Mary Coghlan and Brian Lenihan: Out of their depth

Quite suddenly, the optimism of the Celtic Tiger era has given way to despair and the new government of Brian Cowen has been seen to mirror that despair. The performance of the leading trio — Brian Cowen, Mary Coghlan and Brian Lenihan — has been unsure and floundering. They have failed to communicate the underlying strengths of the economy and, in the wake of the Lisbon Treaty rejection, the secure place Ireland continues to enjoy within the EU.

Brian Cowen's honeymoon as Taoiseach ended on the back of a lorry on a glorious Saturday afternoon in Clara. A surge of negative economic and financial news broke over the following weeks — the ESRI projection of negative growth for 2008; the collapse of the construction industry; an unemployment spurt;  bank shares in freefall; government finances in disarray; and more recently the negative omens surrounding two iconic companies, Aer Lingus and Ryanair,  the talisman of the Celtic Tiger. And humiliation: the rejection of the Lisbon Treaty by 53 per cent of the Irish voters.

Worse still to come. A difficult budget in December; perhaps further international embarrassment if the World Trade talks do not resume; possible further humiliation with a second rejection of the Lisbon Treaty in early 2009; a dismal performance in the local and European Parliament elections in June 2009; and the collapse of the power-sharing executive in Northern Ireland.

It was an extraordinary decision on the part of the new Taoiseach to present the Dáil and the country with a new triumvirate - himself as Taoiseach, Mary Coghlan as Tánaiste and Brian Lenihan as Minister for Finance - all inexperienced in their offices; all, predictably, struggling for air in the heated atmospherics of an international financial crisis and a domestic recession.

The position of Tánaiste was almost anonymous until Dick Spring insisted in 1992 on breathing status into the position, a status unforeseen by the Constitution. He arranged for separate offices, separate staff, a programme manager and an eminence just short of that of Taoiseach. Mary Harney followed it when she succeeded to the position in 1997 and Michael McDowell did likewise when he assumed the role in 2006. There may have been a point to all that in the case of the leader of a Coalition partner and Brian Cowen fitted comfortably in the role when Bertie Ahern made him Tánaiste and heir-presumptive in 2007.

But Mary Coghlan?

She is not the leader of a party in government with Fianna Fail. She certainly is not heir presumptive to Brian Cowen. She has little ministerial experience. Although elected to the Dáil in 1987, it was not until February 2001 that she became a junior minister, becoming a senior minister in 2002 when appointed Minister for Social and Family Affairs. She was undistinguished in this role, unable to withstand the pressures from Charlie McCreevy, then Minister for Finance, for changes on rent supplements (to the disadvantage of the poor) and cuts on payments to widows and widowers.

She became Minister for Agriculture in 2004 in a cabinet reshuffle and remained there until Brian Cowen made her Minister for Enterprise, Trade and Employment and Tánaiste. She may have the capacity to grow into the positions but making her number two with such minimal ministerial experience was a hazardous appointment on the part of a Taoiseach, who, himself was just coming into his new role. Her inexperience was exposed during the Lisbon Treaty campaign when, over several days, she insisted the larger EU states had two commissioners (that had not been the case since 2004). The Irish Times observed: “How someone who had spent several years around an EU Council of Ministers' table could not know that is extraordinary.”

She has seemed precariously out of her depth both as Tánaiste and as Minister for Enterprise, Trade and Employment, a position for which she has no skills or special knowledge.

To have compounded that appointment with the choice of Brian Lenihan as Minister of Finance may be viewed as reckless. Brian Lenihan had been a senior Minister for less than a year, albeit he had been impressive as Minister for Justice, Equality and Law Reform. He had no known expertise in economic or financial affairs, no known views, no track record. Inevitably, he has floundered in the Department of Finance, overawed by the scale of the brief and the difficulties that have piled up on the economic front.

That the three who now represent the face of the new government should all be inexperienced in their roles and all struggling to handle their briefs has contributed to the sense of chaos, ineptitude and alarm. All unnecessarily.

The recession and the scale of the recession should not have been a surprise to the government but it seems it came as a shock to the new Minister for Finance, Brian Lenihan, who has told colleagues he was entirely taken aback.

On 11 September of last year a group of 11 senior civil servants met in government buildings. The group is known as the Tax Strategy Group.

A document was presented to this meeting that outlined the economic framework for the 2008 budget. It noted all the indicators that have since proved crucial: a steep decline in housing output; interest rate rises with further interest rate increases not being ruled out; the rapid increase in oil prices, with further increases “possible”; and the euro-dollar exchange rate appreciating.

While it forecast economic growth over the coming years at around 3.5 to 4 per cent, it noted “the balance of risk appears to be tilted towards the downside”.
It listed a series of further possible negative indicators: a further share dollar depreciation; continued high and volatile oil prices; the rise in household indebtedness; the on-going difficulties in the US housing sector; the further contraction of Irish housing output; deteriorating consumer confidence; and a further deterioration in the competitiveness of the Irish economy.

 So within the civil service and therefore within the government the downturn and dangers were well flagged eight months before Brian Cowen became Taoiseach.

The ESRI had been issuing siren warnings about how the economy was being managed and the inevitability of an economic emergency since 2001, seven years ago.  In 2003 it highlighted the problem with the housing market in the medium-term review. In 2005 said there was a serious danger of a housing price collapse.

It issued this warning in the context of the US economy getting into difficulty, the housing market collapsing here, with unemployment rising to 10 per cent. The significance of this is that the crisis was foreseeable, indeed was foreseen and was avoidable if different policies had been pursued.

According to the ESRI, such different polices would have required taking money out of the housing market by, for instance, getting rid of mortgage interest relief and possibly taxing mortgage interest payment. The objective was that the household sector was not left with huge debt and the dangers of negative equity were avoided.

The oblique message from the ESRI is that this Fianna Fail/PD government — and latterly the Fianna Fail, PD and Green government — has been in large part to blame for the current housing crisis and this was entirely avoidable had “responsible” policies been followed since 2001.

Richard Bruton has been the only opposition spokesperson to make similar criticisms but that has had to be sotto-voce, for the popular mood was all in favour of letting the Celtic Tiger rip.

Ironically, it is the ESRI, whose prediction of negative growth for this year sparked off the spate of negative economic news, that is now the most bullish about future economic prospects. Its track record in plotting the trajectory of the economy over the medium terms has been excellent since it started forecasting the medium terms in 1986.

It has projected minus 0.4 per cent growth for 2008 and plus 1.9 per cent growth for 2009 but in the longer term, ie two years and out into seven years, it is projecting an average growth of 3.7 per cent, well above the projected average for the EU as a whole. Indeed there could be growth by five to six per cent within one year but that could be deferred by a further year because of the credit crunch. 

The reason for such optimism is that productivity growth has been so good and is likely to continue for the foreseeable future at an impressive two per cent, which will be about double the Euro average. And this is because of an enduring residue of the investment in education that all governments have pursued right through since the early 1960's.

Over half of the current generation are going on to third level education. The productivity lifetime earnings of somebody with third level education in the modern world is substantially higher, so that, as the current generation (45 plus) retires, it is replaced by a better educated generation.

This contrasts with Germany where the generation who are retiring have the same level of education as those who are starting off or replacing them, so they do not get the productivity bonus that we will have here. Ireland also has a demographic advantage: a higher proportion of young people. The combination of these factors means that there's still another ten or fifteen years of somewhat more rapid growth than in the rest of the EU.

But nobody in the government is communicating this positive prognosis for the economy, as though they themselves do not believe it. There are noises about the “fundamentals” being “sound” but nothing of the detailed, reasoned optimism in the ESRI Medium Term review published in May.

There are difficult days ahead as the inexperienced triumvirate struggle to keep their heads above water. The budget will be difficult but less difficult if the triumvirate refuse to be bound by the detail of the EU “growth and stability pact”. There will be continued pessimism into the Spring, which will make a second Lisbon Treaty hazardous. But as 2009 progresses there will be a renewal of optimism. The future is not bleak.