The next Irish general election will probably see the current leader re-elected. But the potential for intense coalition negotiations is here and Ireland is set to move slightly away from fiscal rigor, thanks to its vibrant economy.
The European experiment is facing setbacks on a number of fronts, as the refugee crisis and UK renegotiation of its membership top the list of worries in Brussels.
EU officials hope to see this momentum reversed when the Irish vote on February 26. For that, they are counting on Ireland’s current Prime Minister Enda Kenny and his liberal-conservative and Christian democratic party, Fine Gael.
That said, a clumsy communication during the campaign and uncertain coalition talks resulting in short-term political uncertainty could cause a few scares in Brussels.
A strong economic record
The few international headlines that have mentioned Ireland these past few years have mostly highlighted the strong economic recovery the country is experiencing. Since the current government took office in 2011, the country has become the best performing economy in the Eurozone with 6.9% GDP growth (the same as China) in 2015 and an expected 4.5% for 2016.
What is particularly impressive about this performance is that Dublin managed to expand economic activity while reducing its budget deficit by implementing the Brussels approved fiscal discipline — with spending cuts and tax increases equivalent to about a fifth of the economy. Even more remarkable are the job market figures, with unemployment expected to fall below 8% in 2017, well below the EU average.
Consequently, Ireland gives credence to Brussels’ fiscal medicine and offers an antithesis to the backers (namely the Greek, Italian and Portuguese governments) of growth-driven policies.
This has prompted ECB President Mario Draghi to label Ireland his model for economic recovery in the Eurozone, especially since the central bank’s monetary stimulus helped Ireland to borrow at a low cost, with the lowest 10-year bond yields in the Eurozone periphery. Similarly, Fitch recently decided to lift the country’s rating from A- to A, adding to the optimism.
Domestically, ahead of the election, it has been hard for opposition parties to challenge this record, if not for the disparity between Dublin and the rest of the country in terms of jobs and purchasing power.
Not an easy ride for Ireland
However, austerity has also left scars in Irish society, with housing shortages and increasing homelessness. The government also came under criticism for its reform of the public water sector in 2014, when it introduced an individual tax that prompted protests.
More recently, violence in the streets of Dublin — with killings attributed to a gang war — have also undermined the governing party’s traditional reputation for being competent on security issues. Opponents attributed the killings to shortfalls in police budgets due to spending cuts.
Mr. Kenny is also considered to be presenting a poor campaign performance, as he failed to bank on his strong economic record with obscure arguments that are unconvincing to voters. His attempt to promise fiscal relaxing mostly failed when the leader introduced the “fiscal gap” concept, a rather vague and misunderstood argument that confused voters as much as politicians.
His main campaign pledges are now to abolish the Universal Social Charge and to create 200,000 jobs by 2020. Overall, it is a slight retreat from fiscal rigor that intends to soften the criticism of his social performance. Yet meanwhile, the PM points to the risks associated with potentially ousting his government and dramatically reversing current policies; noting the situation in Portugal, which is currently under pressure from Brussels over its deficit target.
Short of a majority?
What is striking about the Irish political landscape is the lack of a popular alternative. Fianna Fáil — the center-right party that ruled before 2011 — has lost credibility and saw its support collapse from 42 per cent in 2007 to 17 per cent in 2011 following the IMF-EU bail-out. A populist party, Sinn Féin, was expected since last year to be the main contender. But unlike in Greece or Portugal, the strong recovery has tempered the populist rise.
According to polls, Mr. Kenny should secure almost as many seats as in 2011, and would then have to form an alliance with another party. The coalition talks could be complicated, as his current coalition partner, the Labour party, is struggling in the polls, and Fianna Fáil seems to be grabbing the momentum once again.
Voters’ reaction to the recent violence in Dublin is also yet to be seen. In a televised debate on February 11th, Sinn Fein leader Gerry Adams was put under severe pressure by other party leaders due to his call for the abolition of the Special Criminal Court. Sinn Fein could thus suffer a blow ahead of the vote, and Mr. Kenny should take advantage of this.
That said, polls could get it wrong; and as with the surprising victory of David Cameron last year, an unexpectedly strong performance by the current ruling coalition would make the process quick and easy. But Mr. Kenny will probably have to negotiate with Fianna Fáil, a bumpy prospect considering the current fight facing both parties in their last efforts to convince voters.
There is also a risk that Ireland ends up being stuck in the same situation that Spain is currently experiencing, with no agreement between the major parties and political deadlock. But in all likelihood, Ireland should remain the EU’s latest success story, at least for another round.
