These shocks were profound, particularly sparking an upsurge in inflation, and an assault on living standards, which linger, as well as disruption to the national economy, and infrastructural plans particularly in the delivery of housing.
A broad measure of how Ireland, and the Irish Government has been faring by comparison with three other peer countries, all in election mode in 2024, is provided by the data in the accompanying table on this page “A Tale of Four Nations as they go to the polls”.
The four nations, have all been or are, in election mode in 2024, in common with almost half of the planet living under democratic governments this year and next.
The observed political patterns that have emerged from the electoral landscape of all four countries in the context of their differing economics experiences are interesting - the contrasts between Ireland and France, both members of the EU, being notable, for example.
Certainly one cannot draw over-simplistic conclusions as to the causes of complex political developments from economic data, but the background is suggestive of the forces at work in the background of both countries.
The rise in France of the RN, the Marine Le Pen-led party, described as 'far right wing' given the patrimony of the party, with echoes back to the Marshal Petain Government of Vichy France in the early 1940s is illustrative. The first round of the French parliamentary elections showed the RN’s surge being paralleled on the left by the rise in radical left element, all at the expense of a squeezed middle, in the form of the reduction in vote share by President Emmanuel Macron’s Ensemble centrist parliamentary party.
The unstable outcome of politics in France, ushering in a new period of “Cohabitation” (see Glossary, page 13) there with its unsettling implications for politics in the whole of the European Union contrasts with the results of the elections in Ireland in the same month.
While immigration has featured prominently in both countries, as it is also in the UK, US, and the rest of Europe, the overall net response of voters in the Republic of Ireland has been the opposite – a convergence of politics towards the centre, so much as that the principal, undeniably centrist, parties at the heart of the governing Irish coalition, Fianna Fail and Fine Gael, emerged with 51.95% of the seats in the Local Authorities, and 57% of the Irish seats in the European Parliament elections in June. Sinn Fein, which sits with the “Left” in the European Parliament, received just 11.1% of the votes in the European elections (14% of the seats).
Ireland’s ‘feel good’ economic indicators, shown in the “Tale of Four Nations” panel opposite, come out close enough to the USA’s, although, on one count – private consumption growth in the past four years – 24.2% it is substantially ahead of the United States'’ 16%.
UK, which has returned an election result that reflects also dissatisfaction with the path of living standards there, along with the lingering remorse of many about the Brexit vote, fares worse than the US.
However, on all counts, the experience of France by contrast with its fellow European Union member Ireland has been considerably worse.
Its recent growth in private consumption is less than half Ireland’s, but when both the level and trend in unemployment is considered it is significantly worse.
Household savings ratios are an indication of the level of feelings of economic security amongst households, and France’s whopping current 17.8% rate compares starkly with Ireland’s 4.6%, again a pointer to the degree of dissatisfaction with the Government and the general state of the nation in France. It puts the 'yellow vest' demonstrations that have featured in France in recent years in perspective, and highlights a background that has been favourable for Le Pen and unfavourable for President Macron.
American economist, Arthur Okun, a one time adviser of President John Kennedy, a member of the Council of Economic Advisers, invented the popular index called the ‘Misery Index’, an indicator that gets some use in assessing economic feel good factors amongst electorates. Derived by simply adding the inflation rate to the unemployment rate, the French ‘Misery Index’ currently stands at 10, compared to Ireland’s 6.9 (Britain’s 7.8 and America’s 6.5). (See ‘Misery index’ in Glossary, page 13).
Furthermore, it is forecast to hardly change in France in the coming year (by the OECD), compared with another significant improvement for Ireland, in 2025 compared with 2024.
What might it possibly mean for the shape of the next Government in Ireland?
It has for long been known that economics alone does not dictate political fortunes – the words of Harold MacMillan (apocryphal) on the topic as to what does “Events, dear boy, events” being relevant. Alongside this is the also valid proposition as to what makes the difference, from the Bill Clinton adviser, James Carville, “its the economy stupid”.
Certainly, it is the case that a favourable economic backdrop is favourable to the re-election prospects of a Government, and that indisputably is the happy position the Irish Government finds itself in, with a new Taoiseach, and Finance Minister, and a reinvigorated set of Coalition parties contemplating the final acts of its term in Government.
This favourable economic backdrop gets added potency as it demonstrably has come about as a result of the actions of the Government in contriving to manage that situation in the face of two external adverse circumstances working against it during its term of office - the Pandemic and the war in Ukraine.
These factors are powerful political capital that is available to be deployed by the incumbent Government parties in the coming general election campaign.
Ireland has led international economic growth charts in recent years and in the immediate recovery from the pandemic recession (the past twelve months in which a technical recession in GDP has been recorded is accounted for by volatility in corporation tax receipts).
This has received favourable mention from recent assessments by the OECD, and in the important annual review by the European Commission in late June 2024. In assessments of underlying competitiveness, probably the most important indicator of the prospects of sustainability of Irish, or any country’s, economic performance it is receiving very high - indeed, sky high - ratings.
IMD ranked Ireland as 2nd in the world in its annual rankings of competitiveness in 2023 - out of 67 countries measured, and jumping 9 places from 11th in 2022 (see above graph on this page).
The IMD annual index of competitiveness, just published in June 2024, showed Singapore returning to the top of its annual rankings of competitiveness by IMD, with Ireland coming in at 4th amongst the 67 countries, This is another remarkable result. Although Ireland’s latest 4th rank represented a slippage from 2nd in 2023, the principal reason for the slippage was a cooling off of the previously white hot pace of GDP growth shown by Ireland since the pandemic recovery – not a seriously important factor behind the small movement seen in the accompanying chart.
The challenges to Ireland’s economic outlook (and model, indeed) listed by IMD (“Risk of geopolitical economic fragmentation”; “Capacity constraints”; “Energy costs”; “changing industrial policy”, and “availability of talent”), while they are all serious, none are of immediate and imminent threat. Neither, from an election point political point of view, most are also not entirely to be seen as falling within the competence of the Irish Government to influence.
The most relevant of those is “capacity constraints”, and it is in that area, Government is likely to be found most vulnerable – especially in areas of infrastructure provision, and in the area of housing, which, nevertheless is beginning to be seen to see some success in terms of Government actions (See graph on page 13 of the Housing delivery patterns in Ireland over the past 12 years).
Speaking explicitly about these, the OECD in its Economic Outlook in May said that the risk of “Geopolitical fragmentation”, and resultant are among the leading threats to the Irish outlook.
This, they say accounted for the technical recession in Irish GDP output in 2023, and the relative slowdown forecast in their projections for 2024 and 2025.
“Manufacturing – combined with the rebalancing in pharmaceuticals and other multinational-dominated sectors, weighed on export growth in 2023, pushing annual real GDP down by 3.3%. This was the first contraction since 2012. Driven by falling energy prices, harmonised headline consumer price inflation slowed to 1.7% in March. Harmonised core inflation was 2.8%, with services price inflation still around 5%”, the OECD report says.
On the investment capacity constraints issue it said: “The government’s decision to save part of windfall corporate tax gains in two new savings funds earmarked to address long-term fiscal challenges is welcome. However, the large investments agreed in the National Development Plan to close housing and infrastructure gaps may run into capacity constraints – especially shortages of skilled labour – in the medium term. Hence, effective prioritisation and sequencing of investment projects will be key.”
Against those vulnerabilities, the Irish Government can point to its successful management of the OECD BEPS negotiations that saw Ireland successfully secure global acceptance of its position as a low tax economy in charging one of the lowest rates of corporation tax 15% to multinationals, and (12.5% - headline rate for the last majority of companies, with turnover of under €750m), and, ultimately, the satisfactory evolution of the Irish national finances, as depicted in the 2024 Country Report – Ireland published on 19th June 2024, in which it presented its recommendation for the EU Council’s recommendation on the economic, social, employment, structural and budgetary policies of Ireland.
The achievement of a Budget surplus, so soon after the Covid pandemic and its exceptional budgetary actions has come before expectations of virtually all economic forecasters in Ireland, and consequently counts as a major plus for the economic management competence of the incumbent Government.
The unexpected and strong polling results of the principal Government parties in the June elections in Ireland will not have been adversely affected by this general perception.
The position of Budgetary balance in the public finances, and the surplus position now achieved leaves the Government in a strong position to introduce a relatively benign Budget in October 2024.
It also leaves open the prospect of the Government credibly claiming that is a responsible agent with regard to its track record in managing the public finances, and assuring the electorate of continued stability in its management for a new term in office.
That position of stability in the Irish public finances comes also as a virtuous circle is intact in the fiscal cycle that Ireland finds itself in.
Previous analysis in Finance Dublin, and in the Irish Debt Clock has drawn attention to the ‘snowball effect’, and the importance of eliminating the primary structural deficit in the Exchequer finances. Such considerations lie at the heart of the assessments by the Irish Fiscal Advisory Council, which will play a part in the process leading up to the October Budget 2025, as they will in the Summer Economic Assessment 2024.
The European Commission in its June 19th Working Paper, published a forecast path for the debt-GDP ratio for Ireland running out for the next ten years to 2034. Its central forecast predicts that the national debt of Ireland will fall over the period, assuming present balances are maintained to just 17 per cent of GDP. This would return the Republic of Ireland to a situation of robust fiscal solvency, a debt ratio in ‘Triple A’ sovereign credit rating status territory, and the completion of a long journey that began within in the career lifetimes of the principal economic policy decision makers of the incumbent Government, notably Finance Ministers Paschal Donohoe and Michael McGrath.
They, by the end of the next cycle of government would have returned the Exchequer finances to the position that prevailed in the early years of the century – the years of the “Celtic Tiger” – and with the benefit of hindsight about the perils of what was about to happen next in those years.
Political Science Analysis
With, constitutionally, at most, 9 months left to run before a general election has to be held, the Irish electorate has given a pre-election assessment on its ratings of the Government in the Local Elections and European elections held on June 10th.
The findings confirm indications that have been evident in the trends shown in opinion polls since late 2023 that the next election is the incumbent Government parties’ to lose, and that a re-alignment of the centre parties Fianna Fail and Fine Gael to either the right (with independents) or to the left, with resurgent Labour & Social Democrat/Green parties is a likely political backdrop against which the next general election campaign may well be conducted.
With the Sinn Fein party vote collapsing in the June elections to 11% of the national vote, and 10% of the seats in the local elections a repeat of that performance would see it lose seats in the next Dail compared with its outgoing tally. That would see it losing the tag of largest opposition party and the prominent platform that has gone with that during the lifetime of the present Dail.
That platform was assiduously cultivated by the party – perhaps at the expense of attention to work at constituency level, as the recent Local Elections have seemed to indicate.
This for example is indicated by the party’s electoral performance at Local Government level compared with Fianna Fail. (Fianna Fail won 238 seats in Local Councils compared with Sinn Fein’s 102, and Fine Gael's 245).
This is a radically changed scenario compared with that which prevailed through most of the lifetime of the present Dail up to late last year, with many considering the implications of Sinn Fein entering Government in the Republic. It may be a blip, and while some commentators have been pointing out that local and European elections are different, but there is no fundamental reason why a general election result, held in the coming 9 months would show a radically different outcome than what has been seen in in the Republic in June.
Pollsters and political scientists consistently point out that actual polling results always trump opinion polls in accuracy. This is one reason why the actual outcome of the votes on June 10th spelled trouble for SF.
The principal reason for this is that actual polls in elections, be they for parliaments or local councils are for actual people, with (mostly) known personalities and political standings to those voting in the polling booths. By contrast, opinion polls that track the fortunes of political parties track just abstract political party brands rather than the performances between elections of actual candidates.
Even on this basis, the June election results spelled trouble for Sinn Fein because they confirmed not just this feature of polling, but they also confirmed a long term downward trend in the party’s fortunes shown in polling – evident ever since the party vote peaked at 36% in a poll in October 2022, as shown in the chart tracking the vote of all parties since the February 2020 General election on page 9.
The fall in Sinn Fein’s vote has been accompanied by two other fundamental features – the strengthening of the vote for the moderate centre left parties, Labour and the Social Democrats, and a weakening of the vote for more hard left candidates, as evidenced by the loss of seats by the independent left radical MEPs Mick Wallace and Claire Daly.
Thus, the Irish centre left has strengthened with Labour emerging as the biggest beast in Local councils, and adding to the fact that has secured a seat in Europe, with 56 seats compared with the Social Democrats’ 35. Together Labour and the Social Democrats (who to date still resist suggestions that they should discuss a merger) with 91 seats would be within sight of challenging SF with 102 seats for the title of largest Opposition party in local government. Were they to combine with the Green Party as a centre left party or coalition at local government level, they would outnumber SF’s total with 102+23=125 local council seats (13.3%).
These underlying trends, captured at a critical moment in time - a real poll - indeed two polls, as distinct from opinion polls derived from manufactured samples by polling companies point to a radically contrasting political outcome in Ireland compared with all three nations referenced in our table on Page 8.
It suggests a convergence towards the centre in Ireland - quite opposite from what has been seen in France.