Ireland needs as never before a new form of leadership to address the enormous wastage of lives and talents; it needs to help rebuild lives and communities decimated by unemployment and the prospect of unemployment, writes Prof Ray Kinsella

The Irish economy continues to be mired in recession. This has grave implications for living standards and for public services, which depend on the performance of our economy. It also has far-reaching implications for preserving social solidarity here in Ireland, and for adapting to seismic changes within the wider EU.

The single most important indicator of how an economy is performing relates to trends and the numbers in employment. In Ireland, the numbers in employment continue to fall. The most recent data (for the final quarter of 2009) show that over the 12 months while the labour force declined by almost 70,000, there was a fall in employment - those in work - of 167,000. The number of unemployed rose by close on 100,000. These numbers conceal very stark realities for individuals, families and for the economy.

The most disturbing feature is the rise in long-term unemployment. In 2009, more than half of the annual increase in unemployment was in long-term unemployment, which now amounts to in excess of 90,000. At the end of 2009, the long-term unemployed accounted for fully a third of total unemployment - a very significant increase of 10 percentage points compared with a year earlier. A second feature relates to the fact that employment fell not just in construction, but in nine of the 14 main economic sectors. In Industry for example, the numbers employed fell by almost 30,000, or 11%.

To understand the significance of these developments for the economy - and for communities up and down the country - we have to take note of the fact that the decline in employment is, far and away, greater than for the average for all of the rest of Europe. Just to take one example, Ireland's employment level fell by some 10% in 2009, compared with a fall of just 2.3% for the EU 27 countries.

Turning to 2010, the numbers on the Live Register rose by 6,600 to just short of 400,040 in May. Trends in employment are a key barometer of the health of an economy and of the society which an economy exists to serve.

The loss of every single job means that an individual or a family are deprived of the opportunity to contribute their gifts to the community. It leaves them vulnerable to a sometimes catastrophic fall in living standards and their ability to maintain their home and to carry-through the responsibilities. Equally, a fall in the number employed means the closure of individual companies, which once gone cannot be reconstituted, and in the capacity of that company to support through taxation and PRSI, public services on which social solidarity depends.

The continued decline in employment in Ireland and the catastrophic rise in unemployment reflect the sharpest fall in economic output since national income records began. Since 2007, the economy has shrunk by over 12%. The projected growth for 2010 is -.5%

The growth in unemployment, and especially in long-term unemployment, reflects the shallowness of the analysis on which Ireland's 'recovery' is based.

Some recent forecasts are projecting 'a return to growth' and 'recovery'. There are compelling reasons for believing that such forecasts are premature. What we are almost certainly looking at is brute arithmetic - the economy has fallen so far and so fast that some correction is inevitable. But that does not signal a sustainable growth in the output of goods and services together with the kind of employment creation that is normally the feature of a recovery. Nor is it clear where the impetus for a sustained recovery which would make any kind of impression on unemployment - and in particular long-term unemployment, is coming from. The growth in the global economy is being driven by countries - the emerging economies of China, Russia, India and Brazil - to which Ireland has very limited exposure.

Equally, 'recovery' in Europe is constrained by the fact that the largest economy Germany is itself a net exporter and is neither disposed to nor does it have the funding capacity (having just contributed $150 billion to the EU 'Safety Net' initiative) to generate the kind of economic stimulus which would create a market for Irish goods and services. The UK, our closest and largest export market, is at the beginning of what will be a protracted and painful process of adjustment. No economic stimulus for a significant increase in our exports there -quite apart from the difficulties of a different and volatile exchange-rate regime.

So, where will the additional demand that will drive growth and employment in the Irish economy come from?

The starting point has to be the reality that Ireland cannot cut its way out of 'the greatest home grown crisis in modern Ireland'. We need policies that encourage the economy to grow. At present, Government is embarked on a process of budgetary contraction - bleeding the domestic economy of demand - that is the most severe in Europe.

To put this in context, Ireland's negative 'budget balance' in 2009 was equivalent to 12.5% of GDP. That is only marginally below that of Greece. The so-called Excessive Deficit Procedure now in process envisages reducing this to 3% or less by 2014. This will require a reduction of two percentage points for each of the next 4 years - again larger for any country other than Greece.

This is simply not achievable and implementing a budgetary strategy aimed at continuing to domestic demand by penalising businesses and families will break the back of the Irish economy and undermine its capacity to recover.

The timescale agreed by the Government with the EU Commission is far too short, even with changed and growth-focused policies; it will take the economy to at least 2020 to recover. That is, only if we start now. Equally, if we fail to fundamentally transform our economic and financial policies, Ireland will be wholly unable to cope with the strains that are emerging across the wider EU, and in particular, the Euro zone.

It's important to be clear about this because the implications for Ireland and our economy are very pressing indeed. The unprecedented €750 billion 'Safety Net' put together by the Economy and Finance ministers last month to deal with the crisis in Greece and to prevent that crisis spreading to Spain and Portugal and even to the global economy, bought time. Nothing more.

There is a probability that Greece may yet have to renegotiate part of its sovereign debt. The pressures on Spain are particularly severe. While every Government needs to make a credible commitment to reducing its budgetary deficit and its level of indebtedness, which are at record levels following the banking and economic crisis, such an adjustment must take place over a reasonable timeframe and at the heart of such a process there has to be an emphasis on growth.

This is not the case at the moment. Indeed it is more serious than that, the sheer volume of 'contingent' liabilities - IOUs written by Government - that overhang the markets and which have to be repaid, are a major source of uncertainty. There is no clearly defined path for Government, or for EU Institutions, to pull back from the massive intervention of the last 3 years: no so-called 'exit strategy' and the absence of such a strategy, together with the inevitability of a rise in interest rates across all of the now heavily countries, is a cause for grave concern. At the same time, the EU has just about used up all of its policy options. In these circumstances, it has to be said that current EU Policy, which is being mimicked in Ireland and in other countries, is fundamentally wrong.

The financial markets remain uncertain and concerned about the possibility of a sovereign default leading to a systemic crisis across Europe. At the same time, a major fault-line has now opened up across Europe. On the one side are now Germany and also France, and countries who are committed to a 'Hard Euro' with the European Commission, together with the IMF having in far-reaching powers to oversee and approve national budgets long before they are even introduced into national parliaments. On the other side is the UK, which is outside of the Eurozone, but very much a part of Europe, and whose newly elected coalition Government have made it clear that they will not be joining the Euro nor will they countenance any new Treaty which transfers more power to the centre. The European Union is being racked by tensions and it is not at all clear how these two quite different visions of Europe can be reconciled. 'Things fall apart, the centre cannot hold'.

The orthodoxy being followed by the Government - and which is being driven by a failed and failing policy in Europe and by deadlines that are artificial and have no basis in economic logic, pose a threat to the stability of the Irish economy. The only question is whether we will have the courage to change policy - or to have a change in policy forced upon us. We should be in no doubt that there is a more constructive and pro-active approach possible.

In developing a new policy approach that builds on our strengths, we have to first ask some very fundamental questions.

1) At the political level, we have many committed and hard-working politicians working in a system that is backward looking, adversarial; a system that has lost contact with the values on which it was based and which has proved incapable of addressing the problems that stretch out ahead of us, and that bring out the very best in our country and in our people. That has to change.

2) At the level of our Financial System, and particularly in light of the recent Report by the Governor of the Central Bank Professor Patrick Honohan, the question has to be asked: At what stage do we stop providing open-ended support with money we don't have to support a 'business model' in banks which has brought the economy to its knees?

3) At what stage do we ask why we are continuing savage cuts in health expenditure, which are destroying the whole fabric of the delivery of healthcare, in order to pour yet more money into institutions that have inevitably and demonstrably failed. The priorities on which current policies are based will not deliver recovery.

4) At what stage do we say that it is more important to support businesses and families, thereby lessening the pressure on the public finances and borrowing, than it is to provide unprecedented borrowed resources to institutions which are there to serve the economy and the community and not to subvert them? Banks are utilities, and their primary aim is to serve The Common Good. This is not happening; we need a new model of banking, and we lack the courage to even try and imagine what form this might take. More regulation, much as some of it is needed, will not resolve this problem. We need to go beyond regulation.

Ireland needs to invest in the restructuring of our economy so that the capacity to build export-driven companies that are equipped to prosper in a global economy which has shifted decisively away from the old world, can be assured. This will not be accomplished by 2014. It will take at least a decade - but knowing that we are at least going in the right direction rather than digging a deeper hole for ourselves will help rebuild confidence and trust and faith - without which there can be no recovery.

We need to do whatever it takes to help those companies which are at present just hanging on, with little or no assistance from banks whose corporate mind-set can only see risk written large in red letters rather than supporting enterprise and hard work and employment. This may require a Loan Guarantee Scheme whereby the Government would subsidise the excessively high interest rates and onerous credit terms which are presently crippling business.

As much as anything else, we need a complete change in the mindset of Government departments and of local authorities who are prepared to do whatever it takes, and to remove whatever obstacles and burdens are in the way of helping companies to survive.

Perhaps most of all we need the courage to focus on what is possible rather than to be paralysed by the uncertainties that can so easily hem in our economy and our capacity to transform our economy at this stage.

More generally, it is not possible to build the new economy that Ireland is capable of creating on the basis of 'old adversarial politics' and an economic orthodoxy that has, and is continuing, to fail. The important point is this, the epicentre of the present financial/economic crisis is - as I argued in Rebuilding Trust in Banking last year - an ethical crisis.

Unless, and until, Ireland develops a mature and forward-looking politics based on objective values and The Common Good, there will be no sustainable growth in the economy: maintaining the jobs that are there, and developing the tens of thousands of new jobs that our entrepreneurs are capable of delivering to mitigate the risk of institutionalising long-term unemployment

What this means is a 'politics' that is not fixed on utilitarianism - which is shared alike by Communism and by corporate capitalism, and by a consumerist secularist agenda on which the talents of our people cannot be developed - nor can they provide any answers to the questions in communities up and down the country where long-term unemployment is becoming institutionalised. 'Why is this happening? I have commitment, talents and education, why is there no work?' A sustainable recovery involves above all: maintaining and rebuilding new jobs and ensuring credit flows to companies from institutions that were the epicentre of our crisis. This is not about 'blame', rather it's about understanding that the mind-set and the model of the prevailing banking system simply has to change if we are to learn the lesson that banks are utilities that are there to serve the community and not to be resuscitated at the cost of deep cuts in our social fabric, including our ability to transform the economy.

When a child is sick, we pray; when a person looses their job, we pray. Ireland needs the goodwill of those with no faith and it needs the prayers of those share a theistic faith to embrace a values-based economic transformation programme, based on our natural resources, the capabilities of our people (and the willingness to invest at this time in these capabilities) and the values that will sustain Ireland at a particularly critical point in its history and in the development of a European Union in crisis.

Transformation is possible, the ideas and the capability are there. The current orthodoxy in Ireland and Europe, based on adherence to an impossibly short time period for reducing borrowing and indebtedness levels spawned by the near implosion of Europe's banking system and as its economy, is enormously damaging.

Ireland needs as never before a new form of leadership and the courage to implement policies that can rebuild our economy. It needs them now. It needs them to address the enormous wastage of lives and talents; it needs them to help rebuild lives and communities decimated by unemployment and the prospect of unemployment. It needs them to bring the best out of our people and to empower them to participate in a recovery and the creation of a values-based Ireland rather than forcing them to turn their back on a country with such promise. It needs to do all this now because the economy is caught in a cul-de-sac and because any further delay will leave Ireland even more vulnerable to the stresses and strains which are convulsing the European Union. We owe it to ourselves and to the European Union to demonstrate that the transformation to a values-based Europe is something that we are capable of.

Professor Ray Kinsella is author of 'Rebuilding Trust in Banking: Regulation, Corporate Governance and Ethics in Banking' (available from Veritas Dublin) and co-author (with Professor Vincent McBrierty) of 'Ireland and the Knowledge Economy' (Dublin, Oaktree Press).