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There is no road to redemption for the strangled middle class

The Irish Independent, February 28 th , 2014

Set aside all the happy talk we hear about Ireland taking its first steps towards economic recovery. The reality is that the squeezed middle is no longer the squeezed middle – it is the strangled middle.

That's because Ireland is worse off than it was three years ago. Feel-good chatter is well and good but the real evidence points to the contrary: the reality is that people are utterly broke.

And after seven years of recession, everybody has had a surfeit of bad news. But worse than bad news is good news which is false. Things are going from bad to worse.

To say we are seriously over borrowed is an understatement. More than €6bn of mortgages on private dwellings are in arrears for 720 days or more. Ireland's mountain of personal debt is estimated to be in the region of €175bn which is around as much as the entire country can generate in a year (GDP).

Elementary economic opinion would hold that a debt-to-GDP ratio of 100pc is unsustainable – we have a debt-to-GDP ratio of 120pc and rising. Our economic growth rates are on the floor. We are often reminded that inflation is negligible, but prices to sustain everyday living are rising as disposable income continues to fall.

So where is this going to end?

At this halfway point of New Beginning's national recovery tour, visiting well-attended venues throughout the country, it has become clear that the only response of some to date has been to carry on regardless, directionless, hoping against hope that property values will recover some time soon. This is madness.
I met a young man last week who has an annual income of almost €100,000. His take- home pay is just over €4,000 per month. His mortgage repayment on a modest three- bedroomed semi-detached house in Dublin is €1,800 leaving him with €2,200 per month to provide for himself, his wife and three children. His wife used to work but
child-minding costs made it unaffordable.

For a family with three children, €2,200 per month is below the Insolvency Service of Ireland (ISI) modest guidelines which is the State's view on the minimum needed to live on.

Just think of that – a person in full time employment on a six-figure salary is living below the minimum guidelines as set out by the ISI.
Take the case of a judge or a medical consultant with four children and a mortgage of around €1,000,000 which bought a three- bedroomed terraced house in a sought-after area of Dublin and includes the added bonus of a small back garden. His take-home pay is around €8,000 per month. However, his mortgage repayments are €4,500, leaving him with €3,500 per month. ISI guidelines would give a family like this about €3,000 per month meaning that he has about €130 per week above minimum guidelines.

His take-home pay cannot afford to continue to send his children to private school; he will probably have to get rid of the family private health insurance and is unlikely to have an annual family holiday. And if these high- achieving professionals have any other debt, they are inevitably under water. People may have little sympathy for highly-paid public servants who are over-borrowed but behind the lace curtains, many of these families are under severe financial pressure.

Now you might say well and good – but if they are broke, how on Earth is a family on €40,000 surviving? The truth is that they are definitely not and this is where the system is fundamentally breaking. Official Ireland has not faced up to this harsh reality, preferring to adopt the mantra that we are turning the corner.

The financial system, which is a part of society, is a delicate thing. It is delicate because at the heart of society is the family. Go into any ordinary home and you will find that the family operates to a budget which is always tight. Tinker with that budget at your peril, for the smallest change can unbalance things.

Mortgages given out by banks in the boom relate to property prices which could never reasonably be paid but the old system demands that they must be honoured in full. We must face up to and bury this unfeasible and irretrievably broken down system.

Yes, small cohorts of society are readying themselves for individual recovery, but society as a whole is being left behind. Hopefully sooner rather than later, the extend and pretend brigade who peddle unsustainable banking products will be compelled to accept the basic premise that people can only pay what they can afford to pay. In the meantime, many of the squeezed classes feel they must hang on in their mortgaged property for dear life, attempting to hold on at levels which cannot be afforded or justified. In doing so, they are jeopardising their family's health and standard of living. As a society, we are on course to see two Irelands being carved out, one readying itself for recovery and the other, a much larger Ireland, hanging on for the time being on a wing and a prayer but
with no long-term sustainable future.

All of this financial debilitation and suffering has been caused by personal debt.

I thought by now we would be on the road to some redemption and I wanted to believe that the Taoiseach's apparently honourable claim that Ireland pays its debt would work and that in the end we would get through by sheer austerity. But the truth is that the mother and father struggling to make ends meet represent the nation's struggle against a wall of debt that cannot and will not be beaten. The long-term lasting benefits for all in dealing realistically with debt must still be understood and realised. The only way is to change course.