THE POLICY of austerity is not working and could lead to a “lost generation” of permanently unemployed people, leading trade unionist David Begg has told the MacGill Summer School.

The general secretary of the Irish Congress of Trade Unions also warned that the Government’s declared intention of taking up to €4 billion out of the economy posed a serious threat to public services.

“It is difficult to see how this will not have a serious debilitating effect on public services because this is cutting into muscle,” he said.

This level of retrenchment would be “profoundly mistaken” in economic terms and the prospect was that unemployment would remain at over 14 per cent

“Half of those on the Live Register have already fallen into the category of long-term unemployed and are in danger of being detached altogether from the labour market,” Mr Begg added.

“The price of austerity potentially is a lost generation of Irish people.”

Austerity was not working, he said. “There is no growth in the economy and without growth to do some of the heavy lifting of adjustment, it is not possible to generate the level of primary surplus necessary to allow for debt repayment.

“Markets know this very well, which is why Moody’s downgraded Irish debt to junk status on July 12th.”

Mr Begg said his long-held belief was that “we should try to emulate the Nordic countries, not just for their economic success but for the social sustainability and equality that is integral to their polity”.

Economics lecturer and former chairman of the body known as “An Bord Snip Nua”, Colm McCarthy said the Brussels summit last Thursday was the sixth attempt to resolve the euro zone crisis.

“I predict there will a seventh, an eighth, a ninth and a 10th and so on,” he said.

He did not believe the measures taken last Thursday were “sufficiently decisive” to prevent contagion to Italy and Spain.

Referring to the Irish situation, he said: “The bank guarantee has exhausted the fiscal capacity of the State.” The “design flaw” in the euro zone that had hurt Ireland most was the absence of centralised supervision, Mr McCarthy added.

Prof Brigid Laffan of University College Dublin said the policies of austerity were always highly contested and always full of conflict.

“Individuals, families, pressure-groups, public agencies all fight to ensure that the costs of adjustments fall on others rather than on themselves and defensiveness becomes the order of the day,” Prof Laffan said.

“Everyone understands that there have to be cuts and the usual refrain is: ‘I know we need to cut back, but . . .”

Prof Philip Lane of Trinity College Dublin said the Government could show leadership and demonstrate it was “ahead of the curve” by adopting an adjustment target of €4.4 billion in the December budget rather than €3.6 billion.

This would demonstrate to our European partners and to the markets that Ireland recognised the change in its financial environment without posing an excessive risk to recovery in gross domestic product.

“The new European bailout framework provides important benefits to Ireland. In particular, an interest rate on European Financial Stability Facility funds of around 3.5 per cent is much more conducive to fiscal sustainability than the previous deal that included a large penalty premium,” Prof Lane said.

“However, the lower cost of official funds, relative to the market interest rates faced by countries such as Italy and Spain, means that policy conditionality is bound to be even stricter on programme countries, in order to make sure that the duration of official support is no longer than strictly necessary, ” he added.