Fado, fado, in the mid-1980s, I remember being part of a small staff delegation going to see the then Secretary of the Department of Foreign Affairs. We were complaining about the postponement of all postings at our level for a year. It was a cost saving measure for the State, then in dire financial straits.
If I remember rightly, we were gobsmacked with a few rhetorical questions from the other side of the table. "Did you ever think that you might arrive here some morning and find the gates locked, the place closed down? Did you ever think you might have to pay for your bin to be collected at home?" This was as bad as it could get: the equivalent catastrophes of the Department of Foreign Affairs being closed and the paying for the bin men. We had no snappy retorts to that line of argument. "How bad can it get?", was a popular question then, when it being bad was the central assumption. It was easy to imagine dismal scenarios. But a real prophet in the 1980s would instead have argued scenarios about how good could it get by 1998. Growth rates of 7.5 per cent. £1 billion budget surpluses. Emigrants returning in droves. Job announcements of 500 here, 1,000 there. State-of-the-art microchip factories employing thousands. A Tallaght hospital. Motorways. Competing phone companies. Right down to the BMW convertibles, the bulging job advertisement pages and the bonuses.
Right now, of course, the tide is turning, at least internationally, and the mood is getting sombre. The temptation in assessing our future prospects is that the central case will always resemble some variation of what we see around us now. So, house prices will slow, but not crash; growth will halve, but to levels which would normally be just fine; jobs will remain plentiful, at least in some areas. The banks will keep on lending, just not so fast as before. The stock market will end up high after an admittedly choppy ride. But as we all know, the central case in the mid-1980s was not what happened. It is very difficult in present circumstances to make a prediction about the state of our economy one or two years from now. Not an idle prediction, but one you'd rely on. You could ask an economist, "What would you bet your house and job on?" except that no one, not even an economist, should in present circumstances bet the house and job.
You could paint a few scenarios to answer, "How bad could it get - for Ireland and for yourself?" when it being good is now the central assumption.
Scenario one: not bad at all, because the G7 will somehow fix it and anyway Ireland will be sort of insulated, since we have a lot of domestic demand. House prices rise much more slowly; the stock market recovers its balance and is up in single figures over the year.
Jobs still arrive, though less frequently; some closures; people not job-hopping as much. Banks still profitable, back to 15 per cent return on equity. No tax bonanzas. A smooth landing. Keep your job; don't get a second mortgage; don't get a new car or take a holiday abroad. No bonus.
Scenario two: bad, but livable with, because although a real financial crunch didn't come, world trade is down and lending is curtailed. The high-tech industry, indigenous and international, is hit with falling profits and job losses. IFSC companies leave or don't take up announced openings. Returned emigrants turn back again. Exporters are hurting. Restaurants close. Retailing is depressed as people are not so confident in their prospects. Banks yank up provisions against bad debts, but are just profitable. Government surpluses are near zero; possibly heading towards deficit. Personally, you manage for a few years. Pay off some loans just to make sure. Cut back on spending and save a bit. No extra cash to be earned anywhere.
Scenario three: bad, much worse than expected. The global financial problems are having definite effects. Interest rates are low, but no one wants to borrow and banks won't lend except to the best of risks as they try to dig themselves out of provisions against business defaults and property exposures. Property prices have fallen and negative equity hits a lot of people who over-extended themselves. Unemployment is way up again; people want to emigrate, but to where? You nearly lose your job - maybe next month it will finally go. What unemployment benefits would you be entitled to, you wonder? Government finances are in steep decline from the heights of surpluses. Universal charges for bin collections are introduced. The doors of the Government remain open, but the paint is peeling and the hinges are rusty.
Oliver O'Connor is an investment funds specialist
