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Irish Debt and Banking Crisis Creates Political Time Bomb in Ireland

November 20th, 2010 Comments off

At first the Irish government, headed by Brian Cowen, the Taoiseach, denied the reports that Dublin was talking to the European Central Bank about a bailout. But with the ECB, EU and IMF shuttling into Dublin by the planeload for meetings with key Irish economic and financial policymakers, Cowen and his ruling party have been forced to admit what the whole world already knew; Ireland is in advanced negotiations with the ECB and IMF for a vast financial bailout, measured in the tens of billions of euros.

In a fierce editorial, the Irish Times asked rhetorically; is this what Irish patriots sacrificed their lives for in the Easter Rebellion of 1916? As the editorial points out, Ireland struggled for its national sovereignty, not for a corrupt and incompetent clique of politicians to bankrupt the nation, forcing it to beg for a handout, in the process eroding what is left of its national sovereignty.

As  in Iceland and Greece, the financial and economic crisis in Ireland, in her case driven by the reckless speculation of the Anglo-Irish Bank that necessitated a massive taxpayer bailout (according to the same politicians who allowed the speculation in the first place) is about to morph into a political crisis. Until recently, some commentators have expressed amazement at the restraint of the Irish people, as their taxes exploded along with the unemployment rate, while social spending plummeted in order to finance the massive bailout costs involved in rescuing Anglo-Irish Bank. However, with the combination of a looming bailout with strings attached, coming after the outright deception of the Irish government, public anger may be about to explode. The revised Anglo-Irish bailout costs will push Ireland’s deficit to an incredulous 35 percent of GDP. This is not only unsustainable; it will break the back of what is left of social restraint in Ireland. The bailout package being put together by the ECB and IMF is unlikely to prevent the public outrage that will gather momentum, as hinted at in the Irish Times editorial.

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Ireland’s Economy In Free Fall Collapse

April 12th, 2009 Comments off
Once known as the “Celtic Tiger” for its sustained record of double-digit economic growth, Ireland is now in the midst of a financial tsunami. Unemployment is soaring, economic activity is contracting, banks are over-loaded on toxic assets and government spending is out of control. In many ways, Ireland seems to be a microcosm of the United States, only with a Gaelic accent. However, sheer size and the status of the U.S. dollar as the world’s reserve currency has delayed the full replication of what Ireland is currently experiencing. For that reason, what is occurring to the Irish economy in the present may be a window of what might soon lie ahead for the United States.
The strength of Ireland’s economy during its glory years was largely based on the seeming success of the globalization economic model. International businesses, especially in the high technology sphere, set up shop on the Emerald Isle, taking advantage of a well educated, cost-competitive workforce in close proximity to the European mainland, and an economy fully integrated into the Eurozone. This globalized corporate presence ended the historic migration of Irish workers overseas, as the local economy’s demands even drew immigrants from Eastern Europe into Ireland. The increase in domestic opportunities contributed to a massive explosion in property prices. Irish banks bet heavily on securitized assets, as the financial sector assumed a leading role in the Irish economy. This is a scenario we have seen elsewhere, and led to Ireland being especially vulnerable to the consequences of the Global Economic Crisis.
Since the onset of the synchronized global recession, the Irish economy has undergone a rapid contraction, erasing almost overnight the economic gains of the past several years. Unemployment in the Irish republic stands at near 11%, and is likely to get much worse. According to Ireland’s Central Statistics Office, the nation’s GDP shrank by 7.5% in Q4 of 2008. Added to these grim numbers hangs the dismal situation characterizing Irish banking and financial institutions; approximately $110 billion of toxic assets are eroding their balance sheets.
The Irish Taoiseach, Brian Cowen, has reacted with desperation. Recently, his government unveiled a second emergency budget. Ireland’s finance minister, Brian Lenihan, submitted a spending plan that contained a smorgasbord of selective tax increases and spending cuts. These steps were taken in recognition of the dual emergency facing the Irish economy. The once “Celtic Tiger” is not only incurring massive unemployment and social distress; the collapse in revenues has driven the nation’s budget deficit through the roof. The steps proposed by Lenihan sought to reduce the government’s budget deficit from nearly 14% to about 10.75% of GDP. These steps were not nearly enough to comfort the worried rating agencies. Standard and Poor’s has removed Ireland’s coveted AAA rating, while Moody’s downgraded all 12 Irish banks.

With expenditures of 55 billion euros and revenues falling below 35 billion euros, Ireland is facing the daunting paradox confronting a growing host of nations, including the United States. The politicians maintain they cannot implement draconian spending cuts in the face of severe human hardships being created by the Global Economic Crisis. Yet, mathematical realities may constrict the ability of political leaders to infinitely borrow money in order to maintain high structural deficits. With the rating agencies having made their move, the ability of Ireland to finance its deficits through the largess of the global credit market will become increasingly more problematic. It appears that the IMF may be the ultimate lender of last resort for Ireland, and that kind of assistance will impose costs of its own.

The economic catastrophe facing Ireland will cause sorrows that cannot be suppressed by a pint of Guiness. Nothing less than national insolvency threatens this once robust economy. And lest the United States pretend that the economic collapse now underway in Ireland is irrelevant to its own situation, the elements that have brought down the “Celtic Tiger” are almost identical to those now eating away at the very foundation of the U.S. economy.

 

 

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