Ireland was one of the nations that was hardest hit by the Eurozone crisis, but now it’s being seen as leading stricken nations in their efforts to turn their economies around. International Monetary Fund (IMF) and European Union (EU) officials are impressed by its austerity measures, imposed after the massive 2010 bailout. For the average Irish person, however, the gain is hard to see. Public services have been slashed, and housing prices have declined 60 percent. Approximately 1,000 young Irish people emigrate every week, and there’s extensive cynicism whether economic medicine being taken by the once-mighty Celtic Tiger actually works.
Ireland’s unemployment is currently upwards of 14 percent. At the start of Ireland’s second year of austerity, there have been tax rises, wage freezes, layoffs and more. This is being supervised by the so-called Troika, the European Commission (EC), the European Central Bank (ECB) and the IMF. These entities bailed out Ireland after the property bubble burst and its banks collapsed.
Larry Elliott, economics editor of The Guardian, describes Ireland as “the Icarus economy. It was the low-tax, Celtic tiger model that became the European home for US multinationals in the hi-tech sectors of pharma and IT. Ireland was open, export-driven and growing fast, but flew too close to the sun and crashed back to earth. The final humiliation came when it had to seek a bailout a year ago. In a colossal property bubble, debt as a share of household income doubled, the balance of payments sank deeper and deeper into the red, the government finances become over-reliant on stamp duty from the sale of houses and the banks leveraged up to the eyeballs.
During the time running up to the bubble bursting, Elliott says that “A series of emergency packages and austerity budgets followed as the government sought to balance the books during a recession in which national output sank by 20 percent. In November 2010, the Irish government asked for external support from the EU and the IMF. Again, it had little choice in the matter. The terms of the bailout were tough and there has been no let-up in the austerity. The finance minister, Michael Noonan, plans to put up the top rate of VAT by two points to 23 percent. At least 100,000 homeowners are in negative equity, and welfare payments (with the exception of pensions) have been slashed. In recent quarters there have been signs of life in the Irish economy, but the boost has come entirely from the export sector, which has benefited from the increased competitiveness prompted by cost-cutting. The best that can be said for its domestic economy is that the decline appears to have bottomed out. At least for now.
“Around a third of Ireland’s exports go to Britain, which is heading for stagnation, a third go to the eurozone, which is almost certainly heading for recession, and a third go to the United States, which will suffer contamination effects from the crisis in Europe. That’s the bad news. The good news is that the supply side of the Irish economy is sound. Much attention is paid to Ireland’s low level of corporation tax, which has certainly acted as a magnet for inward investment, but that is not the only reason the big multinationals have arrived. There is a young, skilled workforce and Dublin does not have London’s hang-up about using industrial policy to invest capital in growth sectors. Ireland had a dysfunctional banking system, but most of the multinationals — which account for 80 percent of the country’s exports — don’t rely on domestic banks for their funding. The problem is that you can’t run a successful economy on exports alone, no matter how competitive they might be.”
In fact, Ireland’s prime minister, Enda Kenny, recently called for even deeper budget cuts. Kenny outlined savings of up to €3.8 billion needed to slash its national debt under the terms of 2010’s EU/International Monetary Fund bailout. Kenny appealed for understanding from the Irish people and stressed that the nation may have to endure a further two or three harsh budgets to put the country’s finances in order. He said on Saturday that the Republic “was in the region of €18 billion out of line”.
“It is the same old story with Ireland in our view — doing good work and will continue to do so,” Brian Devine, economist at NCB Stockbrokers in Dublin said. “But the country is still extremely vulnerable given the level of the deficit.” The anticipated adjustments total approximately eight percent of Ireland’s economy, and follow spending cuts and tax rises of more than €20 billion since the economy began to decline in 2008.
And how are the Irish people dealing with austerity? “We’re squeezed to the pips,” said Tommy Larkin, a 35-year-old mechanic changing tires and oil on the double in northside Dublin. “I never had to watch my money in the good times, but that’s all I do with my money now.”
Wages for middle-class families have been cut around 15 percent, while the nearly 15 percent unemployed have seen welfare and other aid payments cut. The government recently imposed a new household tax, and is planning new water charges next. Driving a car can mean an annual fee of anything from $205 to $3,045, while recent fuel-tax increase haves taken gas upwards of $7.25 per gallon.
Tags: Austerity, bailout, Celtic Tiger, euro, European Central Bank, European Commission, European Union, Eurozone, Eurozone crisis, exports, International Monetary Fund, Ireland, Michael Noonan, negative equity, Property bubble, recession, Troika, unemployment, VAT, welfare