Trinity Economic Forum Special Supplement by The University Times

THE ROAD AHEAD: IRELAND’S PATH TO RECOVERY 24 January 2012

Gary Finnerty, Patrick Lynch and Noelle O’Connell on the Future of the EU

Cliff Taylor on Ireland’s new economic history

Ronan Lyons on Housing

The University Times in association with

Dr Piero Formica on Innovation

Trinity Economic Forum

2012 proudly sponsored by

The University Times The Road Ahead| Tuesday, January 24th 2011 - in association with Trinity Economic Forum - trinityeconomicforum.ie

TEF AIMS FOR A BRIGHTER FUTURE The Trinity Economic Forum (TEF), launching in February of 2012, is bringing together students from across the country to discuss, debate and participate in shaping the future of Irish economic policy. The aim is simple: to develop a more open, constructive and relevant style of discourse among Irish undergrads. So, why is this endeavour important? Because economics itself, never mind most of the developed world and still to some extent the global economy, is in crisis and new thinking is required. If not, the onslaught will continue. This is strikingly clear in Ireland, a country in which retrospective thinking and hindsight analysis is in abundance – available at every street corner, free of charge. Sure, we all knew that the nation was over-leveraged, that (on average) we were living beyond our means and that due membership of the EU monetary union, the consumer was exposed to artificially low interest rates and a boom of easy credit. It’s just a pity that no one cared to mention it at the time. So, rather than discuss what we can do and how we can change, we are still talking about what should have been done, what needed to be done, how it simply shouldn’t have happened. Well the reality is that it did and this must be taken axiomatically as given, providing a new base from which we work. Using the crisis and subsequent (still ongoing) recession as a reference point rather than a focal one, will enable us to effectively implement the measures required by the EU/ IMF bailout agreement without cutting the legs from beneath the Irish people. Will it be difficult? But of course, as austerity is never a welcome prescription. But the treatment is essential if we want to be able return to the bond markets in 2013. This somewhat cold analysis may not be “fair” or “just” but it is the challenge we currently face and one which must be overcome. TEF wants to drive this change, inspiring students and professionals alike to create their

own opportunities, applying entrepreneurial flair to economic thinking and offer decisive, forward thinking leadership. Similar to government, we won’t create jobs, but like government we will try to create the right environment in which students can create their own. Over the course of the two-days, TEF will offer students’ access to some of the nations’ top academic, business and political leaders, providing an insight into the views of each member that partakes in the policy decision making process. From a discussion on De-Leveraging Ireland (Moderator - John Bowman) on the Friday evening , to discussing the future of Ireland in the EU and the Future of News (Mark Little) on Saturday, the forum will cover a range of relevant topics, important now. Similar to the success of the technological industry in the recent past, an open source model for economic teaching in Ireland is required. A model in which the knowledge, expertise and experience of professionals from a variety of diverse backgrounds is shared freely amongst the nation’s undergraduate community. In encouraging students to think for themselves and confidently join the conversation, we will be able to challenge the traditional viewpoints that are preventing us from bringing about this pivotal change. The situation, albeit tough, is clear. Our national debt burden needs to be tamed and government borrowing must be reduced. The situation, albeit tough, is clear. Our national debt burden needs to be tamed and government borrowing must be reduced. We don’t want to slowly drift into a period of stagnation, remaining entirely dependent on EU/ IMF lending mechanisms. It is an abyss from which we would most definitely not return. Self-sufficiency and a can-do attitude are imperative. As the oft-quoted saying goes - “we are where we are.” The real question posed by TEF, however, is where do we want to be? Seán Gill - TEF Co-Founder

Analysts believe an Italian default is the event which will lead to the break-up of the Eurozone. Yet the corollary to this - that if Italy is saved the Eurozone is saved, is untrue. Gary Finnerty on the Eurozone crisis

Our argument must be that if Europe agrees to improve the terms of the first one, Ireland may emerge back onto the markets. Help us now, and you might avoid having to bail us out again. Cliff Taylor on the prospect of a second bailout

There is a downward spiral currently at work in the property market Ronan Lyons on the housing market in 2012

CONTENTS Page 3 Ireland’s new economic history Cliff Taylor, Editor of the Sunday Business Post on why economics students are lucky to live in crisis-era Ireland Page 4 Measuring happiness TEF Co-Founder Seán Gill on how to measure happiness and whether economic growth is all we need to be happy Page 5 Germany’s fiscal union is Europe’s only hope TEF Co-Founder Gary Finnerty on why Angela Merkel’s fiscal compact can’t be allowed to fail Page 6 TEF schedule and team bios A rundown of the topics and speakers at the Trinity Economic Forum

Page 7 The Irish Economy - Facts and Figures Inflation up, GDP down - the latest numbers on the economy Troika report card Top of the austerity class? The IMF/ECB representatives give their appraisal of Ireland’s progress Page 8-9 How to innovate effectively Dr Piero Formica on the sometimes counterintuitive ways that businesses become successful Page 9 Ireland in today’s Europe Noelle O’Connell of European Movement Ireland on the challenges Ireland and the EU face

Page 10 The housing market in 2012 Independent economist Ronan Lyons on the outlook for Ireland’ stroubled property market. Mr Lyons has worked for daft.ie and is currently studying for his Ph. D in Oxford

Page 11 The Euro won’t fail, Germany won’t allow it TEF co-founder Patrick Lynch on a very political crisis and why Germany won’t allow the Euro to go under

Welfare fraud and you The Bull’s Managing Editor Damien Carr on what Ireland can learn from the North’s recent attempts to put the squeeze on welfare cheats

The University Times The Road Ahead| Tuesday, January 24th 2011 - in association with Trinity Economic Forum - trinityeconomicforum.ie

Historic times for economics students Cliff Taylor, Editor of the Sunday Business Post, on the new Irish economic history we’re experiencing first-hand

HERE HAS SURELY never been a better time to be an economics student. Just look up from your textbooks and there -- all around -- the most extraordinary things are happening. In years to come, students will spend many hours looking back at the crisis of the early noughties -- the causes, the impact, the policy response and, yes, the aftermath, for some day it will all be over. Now, students can watch and read as the first draft of this dramatic history is written. For Ireland, the basics of the story are well rehearsed; a “Celtic Tiger” boom which was based initially on firm foundations but turned into an unsustainable property bubble; a system of banking regulation which did not work; the coming together of a domestic and international crisis with a shuddering thump; and the lurch towards a bail-out. There is enough here to fill many a thesis. But where stands the economy now? Forecasters disagree about the precise path of Gross Domestic Product (GDP) and Gross National Product (GNP) in 2012 and onwards, but a few broad trends are evident. One is that the degree of uncertainty surrounding forecasts is even greater than normal. Much depends,in particular on the how the EU crisis plays out and here a complex web or political and economic factors are at play. No-one knows what

will happen next week, never mind in six months time. Against this backdrop, growth is likely to remain weak. There is little points arguing about whether GDP might grow by 0.5 per cent or 1 per cent, or whether GNP -- a better measure of the domestic economy -- might actually fall again. Consider instead what the key things driving the economy are and how it might “ feel”. The domestic economy looks set to remain flat -consumers remains cautious, businesses are slow to invest and government spending is being cut. This leaves net exports as the key positive influence. Fortunately our exporters have been doing well and while slower international growth is taking a toll, signs of some more stability in the US is encouraging. If the euro crisis does not boil over and the US continues a slow recovery, this will provide some support for our economic figures in 2012. It might, by the end of the year, start to “ feel” a bit better. There are a few observations worth making here. One is that any return of stability and even cautious confidence could release some pent up demand by consumers and a response from businesses reliant on the domestic sector. There are no signs of this happening yet -- the key first step is some improvement in the jobs market and some stability in Europe. Unfortunately, high debt levels will remain a drag on some households. Meanwhile

our high level of government borrowing and national debt will require more spending cuts and higher taxes for some years and this is a key factor depressing confidence. A return to some economic growth would not remove the need for what is called “austerity”, but it would make it easier by boosting tax revenues and leading to a quicker reduction in the deficit. Also, the government continues to talk to the troika about ways to improve the outlook for our rapidly rising debt level. At the moment, this is due to reach close to 120 per cent in a couple of years time, a dangerously high level. In summary, we have a strong and flexible underlying economy, capable of selling things on world markets , but high levels of borrowing and debt could hold us back. The old distinction between a strong multinational sector and a slower indigenous sector is, I believe, not so relevant now. Ireland has a strong group of indigenous entrepreneurs and the key issue now is whether Ireland is a profitable place to do business and export from, no matter who owns the company. The evidence suggests it is, with strong competitiveness gains in recent years. This is our strongest card now. Unlike the other two bail out countries and some other states facing market pressure, Ireland’s balance of payments current account is in small surplus. As a trading nation, we

can pay our way, even as members of the euro zone. As the crisis plays out, this underlying economic performance is our most valuable asset and allows the government to make the argument that if we can deal with our debts -- and get some more help from Europe in doing so -- there is a basis for success here. There has been talk in recent weeks about a “ second bail out “ -- the possible need for more cash beyond the end of 2013 when the current EU/IMF cash will run out. My view is that the key national goal must to be avoid this. To do so will require some luck, in terms of a settling down of the euro zone crisis and the start of some economic growth internationally. It will also probably require some additional assistance for Ireland in terms of funding the historic burden of our banking debts, restructuring our banking sector and possibly help in re-entering the markets -- in other words starting to borrow again from investors. Whatever form this assistance takes -and even if some help extends beyond the end of 2013 -- we should surely aim to avoid entry into a full, formal, second multi-year second bail out programme. Our argument must be that if Europe agrees to improve the terms of the first one, Ireland may emerge back onto the markets. Help us now, and you might avoid having to bail us out again.

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2008

June - Irish voters reject the EU’s Lisbon Treaty in a referendum

October - Ireland becomes the first country in western Europe to officially fall into recession in the wake of the global financial crisis February - 100,000 people take part in Dublin protest rally against the government’s handling of economic crisis

2009

January - The number of people claiming unemployment benefit rises to 326,000, the highest level since records March - Ireland loses its AAA debt rating as public finances deteriorate amid a deep recession.

April - the government sets up NAMA to take over large, troubled loans from the banks

October - the Government issues a draft business plan saying the National Asset Management Agency would turn a profit of €5.5 billion by 2020.

2010 March - Anglo Irish reports the biggest corporate loss in Irish history – e12.7bn

June - The Croke Park Agreement is agreed between the Government and union representatives. The agreement sets out the terms of public sector pay reform

September - The cost of bailing out Ireland’s stricken banking system rises to 45bn euro pushing the country’s budget deficit up to around a third of GDP. December - The State secures a High Court order to inject an additional e3.7 billion in funding into AIB, effectively nationalising the bank. March - The Government announces the fifth attempt to recapitalise the banks, bringing the total cost of bailing out the sector to €70 billion. July - Ratings agency Moody’s downgrades Ireland’s debt rating to junk status.

November - The government agrees an e85bn rescue package with the EU and the IMF.

2011

February - Taoiseach Brian Cowen dissolves parliament and calls an early election. Opposition Fine Gael wins most seats but falls short of an overall majority and begins coalition talks. July - The Minister for Finance Michael Noonan secures a High Court order to inject e2.7 billion into Irish Life & Permanent (IL&P), effectively nationalising the institution.

The University Times The Road Ahead| Tuesday, January 24th 2011 - in association with Trinity Economic Forum - trinityeconomicforum.ie

Measuring happiness Sean Gill TEF Co-Founder

“Wellbeing” is somewhat of an ambiguous term, but a notion that people and policy makers aspire to improve. Why, because no one can agree on what factors constitute the make-up of this multidimensional measure. So, as economists and social scientists alike tread quietly through the research labyrinth of quantifying human wellbeing and happiness, they are consistently met by a lack of a formal and universally accepted definition. A barrier though this may be, it is not insurmountable as we seek to understand how we can supplement conventional measures of economic welfare (GDP per capita) with broader indicators of progress in society. In plainer terms, how can we account for the many things that add to life satisfaction, but cannot be monetarily represented (Marriage, Children, Friends, Health, etc). This growth in interest may be a result of the increasing visibility of some of the adverse consequences of economic activity, quite drastically demonstrated from the tumultuous turmoil experienced by the global economy post-2008, or simply a welcome development

in wealthier nations of a priority shift and a push for a re-assessment of the goals of human progress The analysis of wellbeing tends to be separated into two broad categories: objective and subjective. The first category measures wellbeing through certain observable facts such as economic, social and environmental statistics, while subjective measures of wellbeing capture people’s feelings or real experience in a direct way, assessing wellbeing through ordinal measures. It is the second measure that is of interest, the question of whether or not it is appropriate to trust our direct reports of happiness. As our opinions are inherently biased and terribly vulnerable to conscious and unconscious psychological defences, it is almost paradoxical to think that we can build a legitimate structure for interpreting our “feelings” of wellbeing. As Lord Richard Layard of the London School of Economics believes, it is imperative that we place trust in ourselves and move away from the current situation where we rely on policy makers’ judgements about how

they personally would feel in a given situation and towards basing policy on detailed studies of how we actually feel. He is calling for the incorporation of the standard findings of modern psychology into economic thinking so that light can be shed on interesting observations that affect our interactions in the market economy. For example, as Layard notes, doing “well” is often not enough. We also want to be doing better than our peers, highlighting the relative nature of prosperity and how “a rising tide lifts all boats but not all spirits”. Or that how many good things in life are simply “positional” – you can only enjoy them if others don’t. Absolutes are irrelevant. This method of analysis, which Layard touts, is based on a measure of subjective wellbeing (SWB), which is broken down into two strands; Life satisfaction and happiness. Life satisfaction reflects an individual’s perceived distance from their aspirations and goals in life, while happiness results from a balance between the positive and negative factors affecting that individual on a daily basis.

Although this theoretical construct appears applicable in summation, it is questionable to assume that if policy was driven by our biased and individual calls for happiness that it would result in an overall increase in a nation’s wellbeing. Not to mention the difficulty of acquiring the resources required to gather the necessary data. Then some further issues present themselves, namely reliability, validity and comparability of the data across time and nations. So, is SWB a valid instrument for policy formulation? It is, if its limits are understood and can be linked with macroeconomic conditions, but as Stigtlz outlines in his Sarkozy Commission report in 2008, it is this exact link between macro-aggregates and micro-perceptions that individuals find most difficult. This difficulty is a mere technicality, however, as it is the mere fact that this approach is seriously on the table that is important, reflecting a parameter-shifting moment in economics and in policy debates more generally.

Book tickets on our website www.trinityeconomicforum.ie Discount code: TEFTCD2012

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The World Database of Happiness, based in the Erasmus University of Amsterdam, asked respondents in to rate their happiness on a ladder scale of 1-10 in 2010 - their responses are below.

India

5.5

Russia

5.5

Portugal

5.7

Greece

6.4

Poland

6.4

Japan

6.5

France

6.6

7.1

Germany 7.1 US

7.4

Brazil

7.5

Ireland

7.6

N’lands

7.6

Australia 7.7 Lux’bourg 7.7 Sweden

7.8

Norway

7.9

Switzerland 8 Denmark 8.3

The University Times The Road Ahead| Tuesday, January 24th 2011 - in association with Trinity Economic Forum - trinityeconomicforum.ie

Germany’s fiscal union plan is Euro’s only hope TEF co-founder Gary Finnerty on the threats facing the Eurozone, and Ireland’s choice - bend the knee to Germany or go it alone?

HE OUTCOME OF the existential crisis facing the Euro-currency is likely to determine the degree to which Irish policy-makers can exercise independence over fiscal and monetary policies in the decades to come. Subsequently, it is of the utmost importance to evaluate the trajectory of the crisis and contemplate, from an Irish perspective, the impact of either enhanced or reduced economic co-operation and co-ordination at a European level. Firstly, a brief summary of the origins of the Eurocrisis is required. Essentially the crisis has evolved with investors losing confidence in some Euro countries’ fiscal situation because of unsustainable budget deficits and government debt. Without the usual escape route of currency devaluation (the Euro isn’t ours to devalue), these fiscal concerns subsequently lead to higher bond yields, which in turn made financing large deficits impossible in practical terms. This was the case for Greece, Ireland and Portugal who have only avoided enormous fiscal adjustments and default due to assistance by the IMF and the Eurozone/ECB, through the European Financial Stability Facility (EFSF). However, that arrangement is only viable for small economies - fears that Spain and Italy might default on their national debt would render the EFSF/IMF solution obsolete unless the fund is increased to the region of €1.5-€2 trillion. This realistically isn’t plausible following recent debt downgrades by S&P of the EFSF and multiple Eurozone countries. To attempt to increase the fund despite deteriorating credit ratings would increase the risk of contagion among Eurozone countries and undermine the capacity of the fund. Hence, as Italian bond

Germany is the only remaining Eurozone member with the economic clout and bond market credibility to save the Euro - and as such is calling the shots on the future of the currency.

yields hover around 7%, the rate at which conventional wisdom deems unsustainable, the concern for the forthcoming year is that Italy will soon be unable to afford such costs and will have to default on its €1.9tn of sovereign debt, and that is the event analysts believe will lead to the break-up of the Eurozone. Yet what seems like the corollary to this - that if Italy is saved the Eurozone is saved, is untrue due to the structural problems facing the monetary union. A key issue here is the increasing importance of trade imbalances as a cause of the fiscal issues facing Southern Euro-economies. An imbalance refers to the situation in which a country consistently spends more on imports than it earns on exports. While the Eurozone’s current account is roughly at balance with the world, internally, Germany runs a large current account surplus, with matching

deficits in an array of southern European countries. The apparent lack of understanding of the reciprocal relationship between debtors and creditors in the Eurozone design has been damaging. Unlike a federal system, imbalances in a monetary union cannot be remedied through transfers amongst regions; the result of such imbalances is large debt accumulation in the deficit countries, and large savings in the surplus countries. In essence, these imbalances are the cause of the divergence in economic performances of northern and southern European countries in the Eurozone. The consensus on the solution to the Eurocrisis is that the Eurozone requires, in the long run, a fiscal union with a prospect of a Eurobond (that is, debt issued by the Eurozone as a whole rather than by individual states) and, in the short run, unlimited sovereign bond market support

by the European Central Bank. However, this is not the strategy political leaders, led by Germany, are pursuing. Germany has unquestionably emerged as Europe’s pre-eminent economic power and consequently, it has effectively become the chief decision-maker for the Eurozone. However, Germany is not proposing a fiscal union and rejects both ECB involvement and Eurobonds, two key components of a fiscal union, on the grounds that they reduce pressure on individual countries to keep their budgets sustainable. The German proposal is a legally enforceable fiscal pact to enforce austerity, with balanced budget rules enshrined in every national constitution. This is an inherently unstable solution because it imposes the economic doctrine of one country on others. Nevertheless, this is the course of

action Eurozone leaders have adopted following the December 9th summit. Owing to the UK’s veto of a new EU treaty, this fiscal pact will be implemented outside EU law (based on EU Treaties) and in doing so, will face severe legal and practical limitations. Thus, it is unlikely to restore market confidence in the euro or lower bond yields for Italy and Spain. Unless this is remedied, a break-up of the Eurozone becomes plausible. Theoretically, a breakup of the Eurozone will, at worst, destroy the European Union itself or, at best, cause a return to the situation preMaastricht Treaty. From an Irish perspective, in a trade-off between a fiscal union and Eurozone breakup with unknown consequences, the former is preferable. Should fiscal union evolve as the solution to the Eurocrisis, it invariably leads to some loss of independence on fiscal policy which one

could expect to mean greater tax harmonisation and scrutiny of the government’s expenditure. However, the alternative is difficult to envisage due its many uncertainties but it is unlikely to be more beneficial. Firstly, one would expect a significant reduction in the amount available to Ireland from its current bailout as the “Troika” would be reduced to just the IMF, which would likely be unable to replace the bail-out funds Ireland is currently receiving from its European partners. This would force the government to adopt fiscal adjustment on a far greater scale than is currently envisaged. Additionally, Ireland would regain responsibility for its monetary affairs. Domestic banks would no longer receive funding from the ECB and if the Irish Central Bank were to replace this support, the printing of money required would likely devalue the new Irish currency resulting in debt held in foreign currency becoming far more expensive to repay. The economy would be impacted as the Eurozone is Ireland’s largest trading partner. Given Ireland holds a trade surplus with the Eurozone, €14.9bn for the first 6 months of 2011, its importance is enhanced as trade surpluses are intrinsically important to attempts at fiscal consolidation and repayment of sovereign debt. While the current trajectory of the Eurocrisis is toward a break-up of the currency, from an Irish perspective, enhanced economic co-operation and co-ordination at a European level in the form of a fiscal union would be more beneficial. Given UBS estimates losses in GDP of 20% to 25% if Euro-countries returned to operating their own currency, one can only hope sensible policy will prevail.

The University Times The Road Ahead| Tuesday, January 24th 2011 - in association with Trinity Economic Forum - trinityeconomicforum.ie

TRINITY ECONOMIC FORUM - SCHEDULE FRIDAY 3RD FEBRUARY

SATURDAY 4TH FEBRUARY

17:00 - PRESIDENT’S ADDRESS AND WELCOME

09.00-09.25 - NETWORKING BREAK

17.30-18.15 - “AN IRISH ECONOMIC OVERVIEW” WITH DAN O’BRIEN – ECONOMICS EDITOR, THE IRISH TIMES

09.30-10.15 - “ATTRACTING FOREIGN DIRECT INVESTMENT”

10.20-10.40 - “THE FUTURE OF NEWS” WITH MARK LIT18.20-19.45 – PANEL DISCUSSION: “DE-LEVERAGING IRELAND” MODERATED BY JOHN BOWMAN – HISTORIAN TLE, FOUNDER OF STORYFUL AND FORMER RTE BROADCASTER AND RTE PRESENTER 19.50-20.20 - NETWORKING BREAK 20.25-21.10 - “THE DIRECTION OF INNOVATION” BY DR PIERO FORMICA – FOUNDER OF THE INTERNATIONAL ENTREPRENEURSHIP ACADEMY

THE TEF TEAM Seán Gill Forum Coordinator (CoFounder) 3rd Year Economics & Maths

Patrick Lynch Forum Coordinator (CoFounder) 4th Year Business & Economics

Tom Lowe Communications Director 4th Year Economics

Aoife O’Cuilleanain Head of Operations and Logistics 4th Year MSISS

Plunkett McCullagh External Marketing and Hospitality 3rd Year Economics and Maths

11.10-11.30 “THE FINANCE OF SPORT” 11.35-11.55 - “THE ECONOMICS OF CLIMATE CHANGE” WITH EAMON RYAN – LEADER OF THE GREEN PARTY

21.15-23.00 - ENTERTAINMENT

Gary Finnerty Workshop Coordinator (CoFounder) 2nd Year BESS

10.45-11.05 “THE GLOBAL ECONOMY” WITH PROFESSOR PHILIP LANE, FOUNDER OF IRISHECONOMY.IE AND HEAD OF TRINITY ECONOMICS DEPT.

Robert Farhat Programme Coordinator 4th Year Economics

Stephanie Kelly Speaker Liaison 4th Year PPES

12.00-12.55 - LUNCH PROVIDED BY KC PEACHES 13.00-14.25 - WORKSHOP BREAKOUT 14.30-15.15 - “THE ART OF PRESENTATION” WITH ANDREW KEOGH – FOUNDER OF ARISTO, INTERNATIONAL KEYNOTE SPEAKER 15.20-15.55 - NETWORKING BREAK 16.00-17.30 – PANEL DISCUSSION: “THE INTERTWINING NATURE OF DEMOCRACY & TECHNOCRACY” 17.35-18.20 - “IRELAND’S FUTURE ROLE IN THE EU – AN INTERNATIONAL PERSPECTIVE” 18.25-18.30 - CLOSING ADDRESS

The University Times The Road Ahead| Tuesday, January 24th 2011 - in association with Trinity Economic Forum - trinityeconomicforum.ie

THE IRISH ECONOMY - FACTS AND STATS GDP GROWTH 2012 (EXPECTED) - 0.5% MANUFACTURING OUTPUT - UP 13.4% EXPORTS - UP 4.4% INFLATION - UP 2.5% TOTAL EMPLOYMENT - 1,805,500 GDP - DOWN 1.9% UNEMPLOYMENT - UP 5.3% (+15,700) LONG TERM UNEMPLOYMENT - 8.4% (+) SOURCES - JAN 2011 TROIKA REVIEW, CSO FIGURES TROIKA REPORT CARD - HOW DID WE DO? Budgetary measures of 3.5 percent of GDP reduced the estimated general government deficit to about 10 percent, well within the program target of 10.6 percent. The two pillar banks met the 2011 deleveraging targets with almost €15 billion of predominantly foreign assets sold at a better price than anticipated.

Looking ahead, nonetheless, Ireland continues to face considerable challenges. Domestic demand remains subdued, unemployment high, and trading partner growth is slowing. As a result, projected GDP growth for 2012 has been revised down to 0.5 percent, from an estimated 1 percent in 2011. The objectives of Ireland’s

EU-IMF supported programme are to address financial sector weaknesses and to put Ireland’s economy on the path of sustainable growth, sound public finances, and job creation, while protecting the poor and most vulnerable. The programme includes loans from the European Union and EU member states amount-

ing to €45.0 billion and a €22.5 billion Extended Fund Facility with the IMF. Ireland’s contribution is €17.5 billion. Approval of the conclusion of this review will allow the disbursement of €3.2 billion by the IMF and €6.5 billion by the EU. The mission for the next program review is scheduled for April 2012.

TRINITY ECONOMIC FORUM IS PROUDLY SPONSORED BY

The University Times The Road Ahead| Tuesday, January 24th 2011 - in association with Trinity Economic Forum - trinityeconomicforum.ie

How to innovate effectively Dr Piero Formica is the Founder of the International Entrepreneurship Academy, and Professor of Knowledge Economics and Entrepreneurship at the European Institute of Digital Intelligence in Sophia Antipolis, Nice. Entrepreneurialism is the other name of innovation

age, Akio Morita, the founder of Sony, was looking for new ways to change the status quo of listening to music rather than just managing it. In 1978, a Sony engineer built a portable audio cassette player. The device, called Walkman, was a major breakthrough in music listening habits.

There is a direct link between the entrepreneur and the innovation process. Innovation is knowledge turned into action through creative endeavour that highly depends upon the willingness of individuals to start new firms. Thus, entrepreneurialism accelerates that process by increasing the opportunities for the successful commercialization of innovation.

Morita submitted that many have called the Walkman an innovative marvel. “But – he questioned – where is the technology? All components to make it were already available on the shelves. Frankly, it did not contain any breakthrough technology. Its success was built on product planning and marketing”.

Expedition with specific assignments Effective innovation is entrepreneurial and the entrepreneurial execution is an ‘atomic reaction’, fully adequate if the innovation agent is an entrepreneur with enough energetic power, persistence and disciplined fantasy in utilizing time and brainpower to create a pathway for an idea’s success. Thus, effective innovation is an expedition with specific assignments such as why innovating, what kind of innovative concept (evolutionary or revolutionary) in product, service or business model, which criteria should the innovation satisfy, who and where the target group, when the market-entry time. Given these conditions and under the assumption of rational expectations, there would be a high probability for innovation to produce the desired effect.

Bridging micro and macro domains Innovative entrepreneurs make a push to bring novel ideas with commercial appeal to market. The act of bringing new things that are invented to market by implementing them in a way that creates value to consumers, producers or both, depicts the character of innovative entrepreneurship. Yet, commercial success at the company can provoke externalities that negatively affect growth, productivity, and prosperity at macro level. Under these circumstances, working towards a more integrative micro and macro approach is what innovation needs to be effective. In building healthy economies, taxes, regulatory burdens, intellectual property rights and other policy tools in the hands of policymakers are incentives that unleash collaborative possibilities between risk-takers who embark on innovative initiatives and the surrounding society.

Innovation for a future imperfect Innovation agents lack perfect knowledge and information of future events. If guided

From Morita’s perspective, “just having innovative technology is not enough to claim true innovation”. True innovation is made up of three key elements, which Morita call the “three creativities”: by a business plan model consistent with the rational expectations hypothesis, the innovation agent performing that leap sees a ‘mathematical’ coincidence between his/ her expectations and the business plan’s predictions. All errors being random, the new scenario is plausible and the act of jumping promises to enact innovation effectively. The unpredictable elements in the future are too great to be captured by “rational expectations” business plan models. In this respect, business plans look like a static collection of facts (that is, ‘known unknowns’, ‘things that don’t move’), the predictability of which succumbs to unexpected events (the ‘black swan’ in Taleb’s terminology) that may occur in the uncertain and dynamic environment. Effective innovation implies the recognition and acceptance of a culture of how to handle uncertain expectations. Stepping outside the boundaries outlined by rational expectations is the challenge innovation agents have to face. The effectiveness of innovation lies on its execution through the agent’s ability to navigate the incertitude of the future.

Reformed markets, redefined markets: what people want, what they really need By asking people what they want, the entrepreneur who introduces an innovation compatible with their current requirements acts to reform an existing market. The more consumers become aware of and seize the new commercial opportunities, the more the innovation is effective.

Beyond the finis terrae of reformed markets there are the terrae incognitae of redefined markets. In this new perspective the focus switches from assonance (between what people want and what innovation agents bring to markets) to dissonance between “the wants” and the “needs” as perceived by the agents. In the first instance, agents run measurable risks within the familiar routines of reformed markets. In the second one, they face up to immeasurable uncertainty in their search into the unknown of redefined markets – and effectiveness of innovation management practices at reducing the scope of irreducible uncertainty is a prerequisite for successful innovation. Ford T is a classical, often quoted example of effective innovation that requires a willingness to change the existing system and move into new and unknown territories. During the industrial era, in the late 19th and early 20th centuries, Henry Ford disrupted what represented for a long time the state-of-the-art of transportation. As he famously said, “If I had asked people what they wanted, they would have said a faster horse”. Ford didn’t try “to make the horse and buggy go at 60 miles per hour”, rather he exploited the dissonance between “the wants” and “the needs”, and gave emphasis to people’s need for a better (that is, simple, affordable, faster, more reliable, and more capable) mode of transportation. By exploring opportunities that stretched beyond people’s current requirements, Ford found the solution in manufacturing a revolutionary vehicle – the Ford T.

Three creativities for effective innovation By the same token, during the electronic revolution, predecessor of the current digital

Creativity in technology Creativity in product planning Creativity in marketing Contrary to the common belief, creativity in technology, or technological clairvoyance, is far from enabling technology entrepreneurs to succeed. Technology, even a good one, does not sell itself. Creativity in product planning “is so important, though many do not seem to recognise this… What difference does it make how fantastic and innovative your technology is if you do not have the ability to design a useful, attractive, user-friendly product?” Creativity in marketing also cannot be overlooked. Again, “if you have great technology and even a great product, you will only find success if the market is informed enough to welcome your product”.

Experiencing experiments: Crusoe gives way to Gulliver In environments characterized by uncertainty, innovation agents don’t try to predict the future. They conduct laboratory experiments of how to move on and adapt to changes along their experience journey. Any experiment conducted in a business experimental lab is a step-wise process of creating, probing, testing and scrutinising business ideas and thinking. The end of each stage is a gain in experiential learning. Through learning by doing, direct experience and observation, interaction with peers and other active experimenters (both experts and non-experts), innovation agents in the role of aspiring entrepreneurs with high ambitions for growth make and derive meanings about relevance, practicability and profitability of their business ideas under experimental investigation. Of critical importance are >>>

The University Times The Road Ahead| Tuesday, January 24th 2011 - in association with Trinity Economic Forum - trinityeconomicforum.ie <<< rapid learning cycles. The transformational results are ideas turned into start-ups with a commercially scalable business model. Participants in laboratory experiments start a real business rather than just learn with cases or take part in business games and roleplays. The focus is on how to avoid the outcome that experience falls short of what the experimenter desires. Any participant can experience experiments by adopting, in different combinations, “Robinson Crusoe” and “Lemuel Gulliver” behavioural modes. The ‘Robison Crusoe’ type is an agent whose habits (depending on disposition of the mind, pattern of behaviour, motivations and attitudes to entrepreneurship) exclude the impacts of other peers, such as strategic interactions. In the pure Crusoe mode, the experimenter gains experience practising experiments in an isolated environment. Crusoe has to make do without other persons next to him. This means that he/she is trapped by false limits, shows no interest in interaction alignments and believes that costs exceed benefits of interactions such as talking to and learning from other experimenters. Leveraging the Physics analogy, Crusoe exhibits the effects of the Heisenberg’s Uncertainty Principle, with it being simultaneously not knowing both the value and momentum of a venture. Unlike Crusoe, the ‘Gulliver’ type confers a primary role to intensive and laborious interactions with peers from different cultural and business background. All together, the Gullivers foster comradeship and share understandings. In the Gulliver pure mode, the experimenter fully leverages on the potential of interaction alignment. The assumption is that the more he/she is connected, the more intensive are dialogue and discussion, conflict, disagreement and the questioning of existing premises, and the more he/she can gain experience combining knowledge and insights pull down from experiments conducted by networked peers. The corollary to this assumption is that a Gulliver-type experimenter embedded in a wide and diverse range of peer population has greater chances to ride the waves of changes and get creative breakthroughs from experiencing experiments. Thus, in effect, the Heisenberg’s Uncertainty Principle can be somewhat negated as through the close interaction with other researchers eliminates much uncertainty and then get a much better ability to simultaneously measure both the value and projected momentum of a nascent venture.

By experiencing experiments in a participative environment, the Crusoes and the Gullivers learn if and how the same idea could be used in different fields. To take advantage from the multiplier effect of sharing – “I am going to use my idea in my field of use, and you are welcome to use it in your own field” – the Crusoes must give up bad habits that crushing their ability in interaction design favour practices of working in the closed environment of a noncollaborative economy.

What kind of entrepreneurial energy spurs effective innovation? To date, at least in Europe, entrepreneurial energy has been produced in a manner analogous to the generation of nuclear power – that is, through a process of fission that creates a division between demands for, and the corresponding supply of, innovation-oriented support and services. The process has been artificially fuelled by the provision of subsidies and grants from the European Union and elsewhere. However, in terms of effective innovation, highexpectation start-ups and their longterm sustainability, the outcomes have been mediocre. Effective innovation requires entrepreneurial power produced by nuclear fusion – that is, in the terminology of nuclear physics, production of a single, heavier nucleus rather than the separation or fission (production of several lighter nuclei) of the demand for and supply of innovation-oriented services. In the collaborative economy of experimental labs peer-to-peer dynamics releases a considerable amount of energy needed to transform innovative business ideas into successful ventures. Two or more nuclei of business ideas come into very close contact with each other, and it is possible that they fuse together to produce unusual findings that fall outside the existing categories. It is looking at the distribution of business ideas through the glass of quantum physics that it is possible to control the likelihood that one business idea will go one marketplace or another. Laying down the ‘probability’, ‘probably’ or ‘likely’ distribution of ‘quantum packets’ of business ideas with different amounts of entrepreneurial energy means finding the answer to “how to innovate effectively”.

Ireland in today’s Europe Noelle O’Connell Executive Director of European Movement Ireland Originally founded in 1954, European Movement Ireland is a voluntary organisation that aims to provide a nongovernmental, reasoned and fair voice on all issues relating to the EU in Ireland. When I assumed the role of Executive Director, I noticed that our tag line included the phrase: “EM Ireland campaigns for Europe to be discussed in Ireland every day, not just on referendum days. “ I think it’s fair to say that there has never been more coverage of the EU in Ireland recently with words and terms like Eurobonds, quantitative easing, troika, and debt-toGDP ratio all entering the common vocabulary. A significant goal of the Movement is to develop the connection between Ireland and the EU and to ensure that we play an active part in shaping and contributing to the discussion of EU issues in Ireland. Given the rapid pace of events and an ever-evolving new Europe, it is important that we continue to remind ourselves of why we joined what was then the European Economic Community. In the words of one of the former Directors of the Irish Council of European Movement, the late Michael Sweetman: “There are compelling economic reasons for Ireland to seek full membership of the Community…… The EEC concept seems to offer a small country like Ireland new opportunities for political initiative and participation in decision-making at European Level.” I believe his words, which were originally commissioned by The Irish Times in July 1971 for a Special Report, still have significant resonance for today’s Ireland of 2012. Ireland is actively seeking to re-engage with our European partners through rebuilding relationships and restoring our reputation which takes time and is not an easy task. With less than 350 days to go before the start of the Irish Presidency in the first half of 2013 and coinciding with

the 40th anniversary of Ireland’s accession to the EU in 1973, today’s larger and more institutionally complex Union means that our next Presidency will be one of the most challenging that Ireland has ever managed. At this critical juncture in Ireland-EU relations, the 2013 Presidency must be viewed as a considerable opportunity for Ireland to demonstrate our willingness and commitment to play a leading role in the affairs of the Union. The forthcoming Presidency also brings with it an opportunity for Ireland to endorse policies that affect us directly and strengthen our reputation as a credible partner in the EU with items such as the Multi-Annual Financial Framework, Common Agricultural Policy & Common Fisheries Policy up for reform as well as enlargement featuring on the agenda. It’s over one year on from the EU/IMF Bailout Programme for Ireland. Significant challenges still exist, as a result of the global economic crisis in particular, focusing on the Eurozone area where faltering economies and job losses continuing to dominate news headline. The recent positive quarterly review by the troika of the government’s economic programme is to be welcomed. However, our ability to recover and grow our way out of the recession will be severely impacted by the stability of the broader Eurozone. Austerity alone will not solve this crisis; it is important also that we leverage growth opportunities amidst the on-going reassessment of global economic

strategies, with increasing market focus of the dangers arising from a possible disintegration of the euro system. Over the next month, greater clarification on the final text of the Fiscal Compact Treaty will be available and will be discussed at the upcoming Council of Europe summit at the end of January and it is important that a reasoned and robust debate based on the facts then takes place. To return to the title of this piece, “Ireland in today’s Europe,” over 50 years ago this month, days before negotiations commenced in Brussels on Ireland’s accession to the European Communities, then-Taoiseach Sean Lemass reiterated his country’s determination to become a part of the European Community. In this speech to Members of the Governments of the Six, Lemass affirmed that: “Ireland belongs to Europe by history, tradition and sentiment no less than by geography.” This statement is today complicated by a myriad of economic and political challenges. Certainly our relationship with the EU has reached a critical juncture, making it more important than ever that we engage with, and contribute to, the discussion taking place on Europe and Ireland’s relationship with the EU and ensure that our voice is heard in this changing and new Europe.

The University Times The Road Ahead| Tuesday, January 24th 2011 - in association with Trinity Economic Forum - trinityeconomicforum.ie

A lonely house sits unfinished at dusk in Co Louth, left. The phenomenon of “ghost estates” building projects left unfinished due to lack of capital or bank seizures have been grabbed by newspaper and magazine editors around the world as a poignant symbol of Ireland’s crash and the housing mania that preceded it. Photo: Anthony Haughey

Formerly Ireland’s most expensive house, Walford on Shrewsbury Road in Dublin 4 (above) sold for €58m in 2005. Now on the market for nearly a quarter of that price, its interior has been gutted, a fitting metaphor for Ireland’s housing bust

The housing market in 2012 Ronan Lyons is an independent economist and graduate of Trinity College and Balliol College, Oxford. Here he discusses the prospects for the Irish housing market in the coming years As of early 2012, house prices are about half their value five years ago. Indeed, in some segments of the market – particularly Dublin and apartments around the country – the fall is closer to 60%. When will this bottom out? And what steps should the Government be taking? Asking prices fell more dramatically in the final three months of 2011 than in any of the previous quarters on record. It is somewhat ingrained in Irish commentary to see larger falls as a bad thing and no doubt many, particularly those in negative equity, saw those dramatic falls in all parts of the country in those terms. However, it’s clear now that prices had become detached from fundamentals. Thus, the crash is a necessary correction, whose size is determined by fundamental factors. Seen that way, it is better for the prices to race to the finishing line than to crawl there. One of the key points to remember, when we talk about the property market recovering, is that recovery in the property market does not mean an increase in prices. Recovery means an increase in activity. In 2011, banks

issued about 13,000 mortgages. In 2006, the same banks gave out over 200,000 mortgages, meaning we’ve seen a fall in lending of almost 95%. Given that the property market in any developed economy is inextricably linked to the mortgage market, it’s no surprise that prices are down 50% or more, if lending is down by over 90%. Government and property The Government has no role in propping up prices in either the sales market or the rental market. Nor does it have a role in making sure house prices start rising again. Evidence from around the world is that if house prices are rising faster than inflation for any prolonged period of time, trouble is brewing. Instead, the role of Government – when it comes to the property market – is to facilitate activity certainly but also to make sure to the fullest extent possible that the correction in house prices doesn’t go the way of the house prices increases of the late 1990s and overshoot. Unfortunately, it is quite common for overshooting to happen on the way down as well as on the way up in asset price swings, particular if they are debt-financed and

there is no asset more debtfinanced than property. In plain English, if the banks don’t start to lend again, the seeds of the next bubble may be sown. The problem is that Government policy in the last couple of years has been focused on tinkering at the edges, at best not having any real impact but at worst actually doing more damage. For example, the Government has spent quite a lot of effort recently bullying the banks into ensuring variable rates are unsustainably low. Their justification is that they want to alleviate the burden on negative equity households. What of the banks? The problem is that banks are not able to distinguish, when it comes to variable rates, between those with bubble-era borrowings and would-be first-time buyers. And what bank is going to lend at 3% to new borrowers when everyone knows the average interest rate over the lifetime of the mortgage is going to be closer to 6%. There is a downward spiral currently at work in the property market: people are not interested in borrowing now because they believe house prices will fall over the

coming 12 months and – because those who are interested in borrowing find it difficult to get adequate credit – they are proven right. Here, the inability of banks to distinguish between past and future mortgages is actually pivotal. The stress-tests require banks to “deleverage” over coming years, i.e. reduce the size of their loan books. However, this is a blunt tool to achieve a specific aim – reducing the risk the banks hold – because it effectively punishes banks equally for bubble-era excesses as it does for fresh mortgage lending, which has a much lower risk profile. The Government needs its stresstests to be consonant with its other aims, in particular reviving activity in the property market. Predicting the bottom But how far must prices fall? Picking the bottom of the market is a mug’s game. Nonetheless, income multiples and more reliable rental multiples do give us some indication of what to expect. They suggest that a fall from peak prices of around 60% is to be expected, provided rents do not fall substantially after rent supplement thresholds are reviewed.

This sounds like good news – in some parts of the country, prices may already be at sustainable levels. However, as outlined above, bubbles and crashes have momentum and everyone expects house prices to fall in 2012, which means it may be a fait accompli. To buy or not to buy? There are of plenty of people out there interested in buying property. Banks will say that much of the fall in their lending is due to a lack of demand: trader-uppers are stuck in negative equity, while first-time buyers are either unemployed (and possibly emigrating) or, if they are employed, worried about their jobs and their takehome pay. But while fifty thousand 25-34 year-olds have emigrated and another fifty thousand are newly unemployed, there are still over half a million 25-34 year-olds - the household-forming age - at work. These are the people who would, in other circumstances, be kick-starting activity in Ireland’s property market. Some are interested in making a move. Should they? There is never a good time for everyone and never a bad

time for everyone – ultimately it comes down to the price being paid. A simple rule of thumb is to remember why the house is being bought: for the bundle of services it gives, from accommodation to access to schools, from nearby labour markets to environmental amenities. All of these would be captured in the monthly rent and so the easiest way to make sure you’re not bidding too much for a property is to start by calculating how much would be paid to rent that property over the course of a year. A monthly rent of €800 gives an annual rental bill of about €10,000. A cashonly market typically sees sales at ten times annual rent so that property would be sold at fire-sale for €100,000. A healthy mortgage market might see fifteen times rental income (€150,000). Knowing this gives the prospective buyer an idea of what to bid and minimises the risk of getting caught in negative equity. Now if only the whole market could operate on those terms...

The University Times The Road Ahead| Tuesday, January 24th 2011 - in association with Trinity Economic Forum - trinityeconomicforum.ie

The Euro won’t fail - Germany won’t allow it Patrick Lynch TEF Co-founder It was a political motivation and not the economic viability and attractiveness of the EU project that drove the insatiable desire for a common market in Europe. Now this fact underpins the future of the single currency. The establishment of the single European market and subsequent euro currency was in essence to avert the possibility of another tumultuous war in the region. It was this political motivation and not the economic viability and attractiveness which drove the project. The economic literature outlines the conditions necessary for the creation of a common currency across a region. Labour and capital mobility, a fiscal transfer mechanism between regions, and similar business cycles across participants are all requirements for a single currency to be effective and stable in the long term. It is clear that other than capital mobility, these requirements are not met in the Eurozone, resulting in the system-wide stress which has dominated

headlines in recent times. Compare the Eurozone to another currency area, the United States. An unemployed individual in Texas can easily go to New York to find work. However, an unemployed Irishman is unlikely to seek work in Germany without being able to speak German. He is more likely to emigrate to the UK, the US, or Australia, none of which form part of the common currency. Clearly there is a large deficiency in labour mobility across the region. A fiscal transfer mechanism was forbidden in the 1997 Stability and Growth pact which outlined the rules and structures of the future Eurozone, and, as is clear to European political leaders such as Angela Merkel, fiscal transfers from strong to weaker economies in the block are very unpopular among voters. However, a stable, weak euro benefits Germany however and as such Ms. Merkel will sign any cheque to keep the euro alive. Leaders in the Eurozone are trying to promote greater fiscal union with a new intergovernmental treaty. Such a

treaty requires constitutional change, referenda which will almost definitely be universally rejected across the Eurozone. The fact that this is no longer an economic, but a political problem has resulted in the breakdown of market efficiency in the currency area. Across Europe, business cycles do not move in tandem. During the time of our own Celtic Tiger, Germany struggled immensely and was, in fact, the first country to break the debt-to-GDP stipulation of the Stability and Growth Pact. The strong performance of the Euroz o n e econ-

omies resulted in a strong currency and as such Germany was unable to export. The recent devaluation of the Euro has greatly increased the competitiveness of German exports. It is easy to see why the current trading level of the Euro is popular in Berlin. However the threat of funding further bailouts has weighed on Ms. Merkel and as such it was necessary to present a viable route to recovery to the market. Jean-Claude Trichet governed the ECB as a subsidiary of the Bundesbank. German fear of inflation dictated decisions i n

Brussels and as such a strict inflation targeting policy was maintained. The trading value of the euro was viewed in much the same way as the equity of a company. The strong euro led them to believe their policy actions were appropriate even though they were flawed. Developments toward the end of Mr. Trichet’s tenure made it apparent his successor would be required to oversee a major policy shift to sure up the single economy. The ECB’s Long-Term Refinancing Operation, which injected a huge amount of liquidity into Eurozone banks, has in effect been a great deal of quantitative easing - the electronic printing of money. The LTRO programme allows banks to borrow unlimited funds at 1% interest for a period of 3 years. The banks can then keep this on deposit at the ECB for 0.25% interest, in effect paying 0.75% for unlimited liquidity, or else can invest in riskier assets, earning a great margin on their holdings. Launched in December, the initial round was in the order of €500 billion. A second round is predicted in

a few weeks time, this time in the order of €1 trillion, bringing the level of liquidity injected into the economy far in excess of the Federal Reserve’s Troubled Assets Relief Programme (TARP). The inflationary pressure caused by this loose monetary policy has been overlooked in Berlin as the great benefit resulting from a stable currency clearly outweighs further devaluation. In short, the single European currency was an experiment destined to fail. It was economically flawed from the outset. The stakes of this game are colossal. A collapse would drag the Eurozone back into the Stone Age. Too much is on the line to allow the euro to fail. The single currency will survive, and all the member states will remain intact. Mr. Draghi has saved the euro. Do not be surprised if we predict its imminent collapse once more in 20 years time.

The incentives behind social welfare fraud Damien Carr Managing Editor - The Bull “You wouldn’t steal a car!” is of course a line everyone who has bought a DVD in the past number of years is aware of. Under the ‘Piracy is a Crime’ campaign we as consumers are told to only buy legitimate media because buying counterfeit or downloading illegal copies is wrong. No one argues the above and most governments enforce strict punishments for those found to be breaking the law. Why then does our government almost endorse certain other crimes by rewarding those who manage to circumnavigate the legal clauses of social welfare legislation? The 2011 welfare budget was just shy of €20 billion, this year it’s proposed to be

approximately €20.5 billion. International averages put social welfare fraud at between 2% and 5% of overall expenditure in the area. According to an Oireachtas report social welfare fraud in Ireland lies somewhere in the vicinity of between 2.4% to 4.4%. In monetary term this is the equivalent of between €480 million and €880 million. This amount the government is giving to those who break the law. Many of the problems lie within the systems themselves and some of the steps needed to stop this problem have already been taken. Joan Burton, Minister for Social Protection, has already launched new anti-fraud plans to tackle the situation, plans which her department expects to save the exchequer an additional €85 million

in 2012 alone on top of the €625 million in savings already implemented. The new plans cover a two year period and will see almost 800,000 welfare claims examined along with up to 3,500 work place inspections each year. The ‘you wouldn’t steal a car!’ analogy of course goes much further. You wouldn’t steal a car because you would almost certainly get caught, registration plates, CCTV, in car tracking systems all make such theft unthinkable because of the level of risk involved. Piracy was once in the void of legal loop holes meaning those participating, or at least those downloading and not uploading couldn’t be prosecuted. We, as human beings, are opportunistic by nature. We will try to better ourselves by whatever way possible. If people can better

themselves by fraudulent behaviour knowing it’s unlikely they will get caught most will take that chance. The cost of such actions, reduced funding for health, education and other public services are not considered. In Northern Ireland the equivalent spending figure for social welfare is £4.4 billion and only 0.5%, or £20.5 million, of this is susceptible to fraud. The government of the Republic should follow the example led by their counterparts in Stormont rather than hiding behind international figures which tell us our fraud rates are ‘average’. Social welfare fraud in the North in 2001 amounted to, or so figures suggest, £60.9 million. In the space of just one decade they have reduced loss due to fraud by 66%.

While the government tries its best to reduce fraud we too, as citizens, have been doing our part. In 2005 we were enjoying prosperous economic times, the Celtic Tiger was sprinting through the Irish country side and the priority for most was ensuring that whatever the neighbours had you had one too. For the vast majority life was good. That year only 621 complaints of alleged social welfare fraud were submitted to the Department of Social Protection. In 2011 times have changed. The Celtic Tiger has long since died, his corpse trampled every three months by those who come to review our bailout package. It was not however just the countries finances that changed, our attitudes have too. Joan Burton is quoted as saying there has being a

‘cultural shift’ in the way we Irish think. This is blindingly clear when you see that in 2011 we made over 16,000 reports of social welfare fraud to the authorities. We no longer look to see what our neighbours have that we can get but, instead, look to make sure they aren’t getting anything extra than ourselves. Change is possible; Northern Ireland’s success in this matter has shown us that. The chances of you getting caught for social welfare fraud have never been as high. The government are rapidly clamping down on those economic incentives to defraud the state. None of us would steal a car and it could just be possible that we will soon be faced with the reality that neither would any of us steal from the state.

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