By Business & Finance 
By Vincent McCarthy, head of Investment Consulting at Invesco
While there has been a major improvement across a range of economic indicators for Ireland, significant challenges and risks still remain.
Ireland was the fastest growing economy in Europe in 2015, ranked by percentage change in gross domestic product (GDP), the economic indicator, which captures the value of all goods and services in an economy.
The European Central Bank’s record low interest rates have brought reprieve for many individuals and businesses mired in debt, as well as the heavily indebted State.
The decline in the euro exchange rate has boosted exports, and as an open-ended economy we will have felt more than a ripple from the improvement in the economies of our main trading partners such as the UK and US. Therefore, we are heavily reliant on external factors.
At the same time, domestically, we are yet to emerge from the legacy of the last crisis, the implications still being felt across all elements of public policy.
ECONOMIC CHALLENGES
Earlier in the year, I put 11 questions to the Minister of Finance, response pending, which I believe touch on the main challenges and risks facing the Irish economy.
As I put it to the Minister in my email, I have no political affiliation or political agenda. My interest is simply from an economic and financial markets perspective, to get the views of the man at the helm of this recovery.
Multinationals have come to Ireland for a number of reasons, but we all know the significance of our favourable corporate tax regime
1. Ireland is now the fastest growing economy in Europe, and the increase in tax revenues in 2015 even caught your own department by surprise, and you are now expecting to balance the budget earlier than expected, in 2017.
During budget season back in October, one Fianna Fáil minister called you the ‘lucky general’, another said you simply ‘took Brian Lenihan’s plan and tweaked it’. What do you think about this?
2. Leaving aside the local politics, as a small open economy don’t we owe much to developments abroad, not least the actions of the ECB? Most spectacularly, the interest rate the Irish state can borrow at has plunged, the Irish 10-year yield is currently 1.04%, down from the peak of 14.49% at the height of the eurozone debt crisis in 2011.
Debt servicing costs in 2015 were €7.1bn; are we completely reliant on the ECB keeping rates low to sustain our debt burden?
3. By cutting interest rates – deposit rate is -.30% and main refinancing rate is 0.05% – the ECB has also provided reprieve for highly indebted individuals and companies.
However, what do you make of the view that keeping rates so low actually impedes the eurozone recovery, delaying what Joseph Schumpeter called the “process of creative destruction”? Should more businesses have been allowed to fail?
4. Multinationals have come to Ireland for a number of reasons, but we all know the significance of our favourable corporate tax regime.
As pressure mounts in Europe for greater fiscal union, will the 12.5% corporate tax rate always be considered sacrosanct and could a European fiscal treaty ever force the Government’s hand?
5. Even before we have dealt with the mess of the last crisis, the long-term arrears crisis is not going away, the OECD is warning us about another property bubble.
What are your own thoughts on the renting versus buying debate, and should there be a limit to the number of residential properties one individual or company should be allowed accumulate? Is a house a home or an investment?
6. You spent some time in hospital over Christmas. It is only when we get sick that we appreciate the value of quality healthcare.
Unfortunately, 2015 has been another year of horror stories on the state of our healthcare system. Did your time in hospital inspire any reflection on what is wrong with our healthcare system and how resources could be allocated more efficiently?
7. As we look forward, one of the biggest challenges yet to be addressed is the looming pension crisis, as a large group of the population faces retirement with inadequate pension provision.
Those relying on the state pension might be surprised to learn that all we have is a massive unfunded state pension liability, backed by no assets. As the population ages, it will become unsustainable.
Do you think it is now time to set up a new National Pension Reserve fund, one that cannot be raided by the Government?
8. In 2011, when you took over as Minister of Finance, Ireland was considered one of the ‘PIIGS’ of Europe. Have you been received differently at the monthly Eurogroup meetings?
9. An election beckons over the coming months. The famous Clinton-Gore campaign slogan in the 1992 US presidential election was ‘It’s the economy, stupid’.
Will that be the Fine Gael approach and do you believe the economic recovery has been broad enough to get you back into power?
10. What do you see as the biggest risks to the Irish economic recovery? What is your gut feeling on the UK Brexit vote and do you think we are prepared for an exit?
11. Finally, 2016 marks the centenary of the birth of the Irish Republic. David McWilliams recently wrote “the heroes of 1916 were economically clueless … and it wasn’t until these men were dead that this country began to deliver economically for its citizens”.
What do you think the revolutionaries would make of the Irish society we live in today?
Photo (above): Leo Leung
About the blogger
Vincent McCarthy is the head of Investment Consulting at Invesco, responsible for all aspects of investment strategy for defined benefit and defined contribution pension schemes.
He provides clients with bespoke advice on asset allocation, investment selection and risk management.
McCarthy has previously held roles with Merrill Lynch in the US, Davy and IFG Ireland, advising and managing money for high net worth individuals and corporate clients.
He graduated from the University of Limerick with a 1.1 Honours Business degree in 2003, majoring in Economics and Finance.
He also completed a Masters in Finance at Fairfield University, Connecticut after being awarded the Fr John Conlisk scholarship. He is also a CFA Charterholder and a qualified financial advisor.
You can find him on Twitter, or view his personal blog.
