Ireland’s economy will take longer to recover from its current slump than from the recession of the 1980s, John Bruton, former Prime Minister of Ireland and European Union Ambassador to the US, told CNBC.com on Wednesday.
Bruton, who served for three years as Prime Minister from 1994 and spent two periods as finance minister during the 1980s, warned that there was a danger that many of those facing unemployment in Ireland will leave the country.
“The recovery from this probably is going to be slower than the problem of the 1980s was," Bruton said. “There’s a risk that a lot of the people leaving now won’t come back.”
“It was a common misconception that we had abolished economic cycles. All that happened was that we postponed for a few years the eventual downturn,” he added.
If Christine Lagarde gets the job as head of the International Monetary Fund (IMF), which helped bail out Ireland last year, some Irish commentators, including economist, author and broadcaster David McWilliams, are worried that she will be less receptive to Ireland’s problems.
Nicolas Sarkozy, President of France, has criticized Ireland’s low 12.5 percent corporation tax rate as “fiscal dumping” and an unfair way of attracting foreign investment.
“The board is very jealous of their powers. Whoever is managing director fronts the plans of the board,” Bruton, who spent time at the IMF during his time as the EU’s ambassador in Washington, said.
“It has recently been very explicit in saying that cutting the Irish corporation tax rate is not part of the program. Whoever is chosen as MD will follow that program. The pressure over the tax rate is coming from the Elysee rather than the Finance Ministry,” he added.
“I had a lot of time for DSK in terms of his ability to present complicated economic terms in simple language and socially aware language. One of the difficulties for the economics profession is that it’s not good at expressing itself in simple language," Bruton said.
Ireland’s people have been relatively stoical about the austerity measures imposed as part of the 85 billion euros bailout.
“A lot of the strength of Ireland’s people’s acceptance of the situation, compared to Greece or Spain, lies in our political system of proportional representation,” Bruton believes. “Everybody’s vote counts, you can’t win seats with 40 pecent of the vote. People still complain, but they know they can throw the politicians out.”
He reiterated his confidence in the current government of Ireland, which is led by Fine Gael, the party which he served.
“The government is implementing the program, according to both the EU and the IMF. Our banks are well capitalized and, while the level of mortgage defaults is rising, it’s still quite low,” he said.
“What’s limiting growth at the moment is actually reducing household debt. People are spending less. That’s not a bad thing, as domestic borrowing had reached unsustainable levels."
“There was a lot of borrowing by companies on the strength of the assumption that foreign governments wouldn’t default,” he added. “If that assumption goes out the door it’s not just Ireland that’s affected.”