“Not fit for running a corner shop” – Bruton

If FG was beaten up in the media last week for its initial knee-jerk response to the European Commission’s proposals for pre-scrutiny of national budgets, this week’s Dail speech by Richard Bruton went a long way towards redressing that error of judgement. He also made an almost irrefutable case for reforming the way budgets are produced here.

Bruton was speaking on the Bill to enable Ireland to contribute to the Greek rescue package. Fine Gael’s support means the Bill, on which even the populist supremos in Labour have temporarily suspended their serial principled ‘opposition to everything’ stance, will go through on the nod.

“Gross spending by Government grew at 12% per annum after we joined the eurozone. This was more than twice as fast as it had grown prior to joining and 50% faster than the rate of growth of the economy. It was plainly unsustainable,”  Bruton began his diagnosis.

“Export growth collapsed to less than one quarter of the rate that had applied prior to joining the eurozone,” he added. 

“This was an incredible collapse in our export performance and we lost market share consistently for six years in a row, from 2001 onwards. Unit wage costs grew at five times the rate they did prior to joining the eurozone. Significantly, this occurred at a time when Germany was decreasing its unit wage costs to zero growth. In just six years we lost 25% of our competitive edge, relative to Germany. House prices doubled in the years after we joined the eurozone and rose much faster than anything which had occurred there before. The exposure of our banks to foreign sources of funding went from 10%, according to the Governor of the Central Bank, to 60%. No one cried, “Halt”.”

The problem, he pointed out was not Ireland’s alone.

 “Other countries saw the arrival of cheap money as an opportunity to develop unsustainable policies,” Bruton said.

The European Central Bank was excessively fixated on inflation in the eurozone and ignored rising credit bubbles in the peripheral countries, like Ireland’s housing bubble. Moreover, the strong eurozone members states, like Germany, pursued their own ‘go it alone’ policies. There was no collective understanding of what was needed to make the eurozone work, Bruton suggested.

In his critique of the eurozone response to the present crisis, including the European Commission’s recent proposals for pre-budget scrutiny of eurozone states,  the FG spokesman on Finance expressed serious concern that the same flaws of a too narrow approach, as in the pre-crisis era, is again being pursued by the EU.

“[The Commission’s] understanding or ability to implement the broader element required to make the eurozone a success is seriously open to question,” he said.
“ The more I read the clearer it is that the primary focus of European finance Ministers is fiscal retrenchment. It is the sum total of the recipe that is evident.

“Just as the deficit countries have to learn to live in a eurozone, the strong countries also have to learn what it takes to lead a successful currency zone that will work not just in the short term and for all the members.”

But he reserved his most trenchant criticism for the way we frame our own annual Budgets
“We have a budget system which is not fit for the running of a corner shop,” he said.

“ We do not have any system for independent assessment of whether the fiscal stance being taken by Government is appropriate,” he added. No system of ‘checks or balances’ within the House or the system that might have headed off reckless fiscal strategies, compounded by no priori parliamentary scrutiny of budget options.
“Paradoxically, the biggest obstacle to the scrutiny we need in this House is at home rather than in the Commission,” Bruton concluded.
Bruton’s core argument is that we need to get our own house in order before we debate the merit or otherwise of the EC’s proposal for advance scrutiny and peer- review of eurozone Budgets. It’s a fair point. Our present budgetary system is no longer fit for purpose.
A commitment by the current Minister for Finance to immediately establish a Fiscal Council would be a good start. Fine Gael’s detailed proposals for reforming the budgetary process as set out in their reform document would also bear useful scrutiny. If the issue isn’t faced up to now, then the opportunity for meaningful reform may pass. An incoming government may decide, likely as not, to conveniently forget those lofty reforms promised during a period of austerity and preserve the power and pomp that is traditionally the sole preserve of the Minister for Finance and his Government on Budget day.