If the worst is really over, when will the jobs start to grow?

Commentators are daring to ask the question: if the worst is over, can recovery be far away? The Government is certainly hoping so, and the latest opinion polls showing that its popularity ratings may have risen off rock bottom levels may, in part, boost such hopes. The economy has undoubtedly come back from the cliff edge it faced a year ago. In February and March last year, big and small international companies were shifting billions of euro out of Ireland's banks in fear that the Government insurance policy of guarantying all the deposits and bond debt of the banks would be tested. Reflecting the fears, the key annual interest rate on repaying the national debt climbed dangerously at one stage to over six per cent - higher than most mortgage borrowers have to pay on their home loans. It took months before the key Irish repayment rate fell back to rest around 4.8 per cent, still much higher than the rest of the eurozone. Then the problems facing Portugal in recent weeks, as its sovereign interest rates and cost of serving its debt raced up to match that of Ireland's, and in fellow eurozone country Greece, where interest rates soared to 6.7 per cent to new crisis levels, reminded many that the crisis was not necessarily in the past. The shift of international focus away from Ireland's debt problems after the busting of the boom was welcomed by many in Government. In truth, Ireland is settling into a long period of paying big interest rates on servicing its national debt because the lenders to the State remain to be convinced that the banks here will be mended. One line in last week's exchequer returns which showed how much the Government raised in taxes and spent in the first four weeks of the new year were a little reported reminder of the cost of the bust: payments to service a still growing national debt in January alone had ballooned to €310m from about €100m the previous January. Worse, the repayments on our national borrowing in January accounted for about a third of the €1bn the Government raised in income taxes in the month. It appears we are setting into a grim period of repaying a high level of debt while high unemployment continues to inflict damage on families and households. Ray Kinsella, a professor at the UCD Smurfit Business School, is an influential academic who worked as an economist at the central bank and at the old ministry for trade. Warning that austerity budgets will continue to devastate Ireland, Kinsella argues that there is an alternative. The Government has signed up with the European Commission to slash the Irish budget deficit by the end of 2014. This involves getting a budget deficit of over 12 per cent of GDP down to three per cent in the next three years. "I think that is untenable. It is untenable for a number of reasons," Kinsella said. The Commission has tacitly admitted there are problems with the process because they have already decided to extend the deadline by up to two years, he said. Betting on the recovery is staked on a strong pick-up in exports as the world recovery picks up pace. But, he said, the economy was "emasculated" and there was no guarantee that there will be an international pick-up. Meanwhile, mainland Europe will start to raise interest rates next year, he said, which will exacerbate the debt problem in Ireland. All European governments are betting on the same thing. "The budget policy has got things the wrong way around. All governments are following the same strategy of hoping to boost exports. The last thing you do in that case is to take out domestic demand," said Kinsella. He rejects the argument that the markets will punish countries like Ireland by pushing up their sovereign interest rates to new highs. Kinsella said that the European Commission put together the agreements on how governments handle their budget and spending - the Stability and Growth Pact - when "a catastrophe of this scale was not on the agenda". He said there was now no point in digging ourselves deeper into a hole. "You have to say to yourself we have had four budgets now and each of those has been deflationary and unemployment will rise to 500,000. We simply can't afford to keep losing that sort of capacity. Firms are failing every day. I said a year ago that the budget was too severe because the adjustment was already taking place," he said. Kinsella's prescription is that the demands on Ireland, and now Greece and Portugal, are too great. The scale of the bust is so great that countries should be given much longer to reduce their budget deficits. Otherwise, he said, the prescription will kill the patient. "Potential is being lost. I can see it in the university students who are leaving the country. I am very clear that continuing the current fiscal policies will destroy the capacity of Irish economy to recover. The kind of adjustment they are trying to impose is just too difficult. The EC needs to take a much more realistic view of levels of adjustment for Ireland, Greece and Portugal," he said.