Don’t panic! The worst thing we can do when faced with an economic slump is to lose the head. Yes, the economy is moving into recession — but this has been known for a while. Anyone who cared to listen to a taxi-driver, let alone look at the hard numbers, has been concerned for a few months now. We are where we are, and now it’s time to formulate a plan to get the economy moving again, so that a serious situation does not become a crisis.

Given that the European Championship is reaching its climax, let’s use a football analogy. As we’ve seen time and again in the Championship, teams are faced with difficulties. When a team goes two down and the clock is ticking, the manager needs to remain calm. The first objective is to get level — which might demand one set of tactics and one type of player. Once that has been achieved, winning the game might demand a different tactic, that could involve bringing a certain type of player off the bench and sacrificing another player for the sake of the team. The consummate manager understands the short-term tactics and the medium-term strategy to get the best out of his resources. He also understands the opposition’s strengths and weaknesses and how best to exploit these. Critically, he stays calm and offers leadership.

To prevent a difficulty becoming a crisis, the manager must also be honest with himself about the weaknesses in his team. He needs to rise above the hype to better marshal his defence and organise his attack.

When faced with an economic challenge, the imperatives are similar. The first thing our manager — in this case Brian Cowen — must be is honest about the extent of our difficulties. Honesty is not easy at this juncture. Most of us want to massage the truth and avoid it.

In difficult times, clarity, rather than nostalgia, is needed. In the same way as nostalgia for an ailing team can be exposed at the highest level — as it was with France in this championship — loyalty to an economic model that has outgrown its usefulness can be fatal. The French coach should have seen that the likes of Henry and Makelele were not the players they were two years ago, but he ignored the signs, believing that the old magic could be rekindled.

Similarly, the Irish binge is over and the present recession was not flagged properly because the economy’s early warning signals were ignored. Huge increases in personal debts, massively overvalued houses and a lamentable fall in competitiveness were dismissed as being part of a “new paradigm”.

So we could have reacted two years ago by reigning in spending and raising taxes. In addition, the banks could have been brought to heel by reminding them that they operate here under a license and that bad behaviour, like reckless driving, comes with penalty points. We all understand the basic idea that too many penalty points will result in your license being revoked. The banks should have been similarly disciplined by the Central Bank. But we didn’t do any of this and now there ‘s no value in blaming or pointing the finger.

So, like a good football manager, let’s first be honest with ourselves. How bad is this recession likely to be? Will it be as bad as the 1980s?

There is a very compelling argument to say this downturn will be worse than the 1980s. Ireland is about to experience a “debtors’ recession”, where enormous personal debts saddle people with huge monthly payments to pay for things that have already been bought and fun that has already been had. During the boom, we became the most indebted people in Europe and our banks operated a scam that can only be described as “industrial scale loan-sharking”. This money will have to be paid back — at considerably higher interest rates than it was borrowed.

In the 1980s, the government was the debtor; today, it is all of us. At least in the 1980s, you could emigrate and escape paying the higher taxes that were necessary to pay back this national debt. Close to half a million of us made that choice. Now there’s nowhere to run, nowhere to hide. Personal debt follows you around; national debt can be shaken off!

In addition, the most indebted generation are the young generation of workers who bought into the property market in the past five years and find themselves trapped. Therefore, the very generation that typically drags an economy out of recession through hard work, is carrying a “debt monkey” on its back.

Normally, when a country finds itself in such a dilemma (as the US also finds itself today), it devalues its currency and prints money to inflate away the debt. The Federal Reserve is doing this at the moment, which is why Irish people find it cheap to shop on 5th Avenue.

In the early 1980s and the 1970s, we also tried this. Mortgage debts were eroded by almost a decade of double-digit inflation. People who took out large mortgages in the early 1970s, found that inflation had reduced them progressively by the late 1980s. This safety valve is not an option for the present generation of debtors.

This means that, if we are being honest, we’re faced with a period where our bills are likely to be expensive and the available cash we’ll all have to cover these is likely to be modest. With that in mind, what are the options?

We are now like the football team that was coasting, but suddenly finds itself two down. We have to take remedial action to get back in the game.

The first thing we need to do is cut costs. Obviously, this implies an immediate pay freeze and significant cuts to public expenditure. This is not because the people and services involved are any more culpable than anyone else, but it is because the State can’t afford them. When your revenues fall, something has to give. By reducing government costs, the State sets the example for the rest of the country and a few years of austerity will make us competitive again.

Germany is a good example of this type of economic management. After the post-unification bubble, it took the Germans six years of retrenchment to regain competitiveness. Today, German companies are once again world-beaters.

If we do this, we’ll pull level and vow, “never again”. Never again should we be enthralled by the illusion of easy money in property and never again should we allow vested interests to hijack our economy.

The next part of our strategy is to win the game. We can do this by learning from our mistakes and adopting best practice from elsewhere. As Jack Charlton did, we should devise a game plan that suits our talents, not anyone else’s. This will demand less accounting and more vision, plus an amount of risk taking.

The best mechanism to achieve lasting economic progress is the market, not the State. Bureaucrats can’t pick winning businesses; entrepreneurs, on the other hand, can.

Therefore, the State has to facilitate and create the environment for Irish entrepreneurs to invent a new Irish model whereby people are incentivised, not penalised, for taking risks and brainpower is recognised as the most significant comparative advantage we have. The objective should be to create a European Silicon Valley in Ireland, with an Irish flavour.

We’ve done it before, with our world-class multinational industries, and we can do it again. The message now is game on, don’t panic!

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