Saturday, 2 October 2010

Ireland: Busted. The Guardian on Ireland's economy.

Sometimes those on, or from, the outside can see things better than those in the thick of it.  Wood from the trees and all that.   The German ambassador to this country hit it on the head some years back, when his accurate observations on Ireland, the Irish economy, and the Irish were met with frothy indignation from the natives. 

I imagine that, in the aftermath of Black Thursday and the latest estimates of how much the bank bail-outs will cost us, this weekend's international papers - and particularly the Sunday titles - will have some interesting things to say about Ireland's self-inflicted economic woes.  

Cowen thinks we must sort it out ourselves, as it is a matter of our country's sovereignty.  Well maybe sovereignty is too expensive a commodity?   And after all, sovereignty is what put gombeens like Cowen and Ahern in power.  Maybe this country of shysters and chancers was never fit for it?

Anyway, thanks to C for sending this.  It's an editorial from yesterday's Guardian.


From Greece to Japan to the US, countries across the world have been devastated by the banking crisis. But no economy has been wrecked quite so brutally as Ireland's. The erstwhile Celtic Tiger has seen its national income shrink 17% over the past three years – the deepest and swiftest contraction of any western country since the Great Depression. At the height of the long boom from 1990 to 2007, property in Dublin was worth more than in London. Since then, prices have dropped by around 40% – and are still sinking. At this rate, the country will soon hold the dubious honour of hosting the biggest property bubble and bust in modern history. When financiers joked in 2008 that the only difference between bankrupt Iceland and hard-up Ireland was one letter and a few days, they got it wrong – the mess the Emerald Isle is now in is so much worse.

When a country has gone bust in such spectacular fashion, the causes for its crisis are bound to range far and wide. Primary among them we might count an overreliance on property prices both for the feelgood factor and for public revenues. During the boom, Dublin cut income and corporation tax and relied increasingly on property taxes. As soon as the bubble burst, revenues collapsed. In other aspects, policymakers can claim that they simply stuck to the international orthodoxy for economic success – lure in foreign capital wherever you can, pursue your comparative advantages (which in Dublin, as in Reykjavik, came to be seen as finance) and remain open. But one of the lessons of what Gordon Brown once termed the first crisis of globalisation is that being open for business at all costs does not work well for small countries with homogeneous economies. And it really does not work with dozy policymakers.

As Pete Lunn of Dublin's Economic and Social Research Institute notes, the elite directing the Irish economy is more tightly closed than an oyster shell – so that the top civil servant in the department of finance would normally expect his tenure to be followed by a stint as chief central banker. Policymakers shrank from calling the property bubble a bubble until it had popped. And when it had burst, they accepted too easily the bankers' claims that they were merely short of liquidity rather than utterly bust. They did as the IMF advised and put into force some of the most savage spending cuts ever – with the result that nearly one in six workers is now unemployed, and that another economic downturn has begun.

Similarities exist here with other countries: just ask Gordon Brown. The big difference with the UK is that, as part of the euro club, Ireland cannot unilaterally devalue its currency. Its only road back to competitiveness is to cut workers' living standards. Which means that, whatever Mr Lenihan claims, the Irish economy has further to fall.
They were at it again yesterday. The Irish finance minister, Brian Lenihan, promised voters that the national "nightmare" they have had to live with for the past couple of years would soon be over: "We are now bringing closure to that." He did not convince financiers, who have heard a similar form of words from Mr Lenihan every time he has brought forth another ill-advised plan. Even measured against the minister's previous gambles, though, this one is huge.

Yesterday's bailout will include Anglo Irish, the property developer's favourite bank, as well as Allied Irish and Irish Nationwide – and it is set to raise the budget deficit from around 12% of national income to an astounding 32%.
And all the way down, Dublin ministers have promised voters that things are about to get better. Those emergency loans to the banks – that would sort it. These savage spending cuts – that would do the job. That decision to pretty much guarantee the entire banking system (with practically no questions asked) – this time for sure. Wrong, wrong, wrong. Like a body flung off the roof of a skyscraper, the Irish economy has just kept on falling.

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Anonymous said...

it shoo doo look grim GM on the bright side many people now know that oirland and iceland are not the same place our little pardise finally got the air time it deserves on thursday minister martin explained that mild recssion in irl was over thank god, the banks would be recapatilised by the end of the day whats the problem? one network ran a translation of M.M AS they do with coronation st what bog does this genious hail from who the hell voted for this thick as shit FF plonker I could hardly understand no wonder irl is such a success story - BH

Der Wanderer said...

Thanks, GM, a pretty good and very clear analysis. But what is the real remedy?

The Gombeen Man said...

MM and the rest are fooling only themselves, BH. Another difference between us and Iceland is that its former PM is being charged at court for negligence for his part in Iceland's collapse.

Hi Wanderer. To be honest, I'm not sure there is one. I think the damage has been well and truly done and the country is well and truly up the proverbial creek. I would however, like them to accept that and stop pumping billions into bank and builder bail-outs which only prolong the whole sorry process.

No. We are broke. Let the market take its course and stop propping up the sorry ediface with taxpayers' cash. I'm sure Harney would agree, remember Boston and Berlin?

Then bring in the IMF, or whoever else, and have safeguards imposed from outside to make it more difficult for the place to be held ransom by its gombeen elite in the future...

Dakota said...

Interesting article GM. If I may...IMO the fundamental practicalities of this are very straight forward, you don't need to be Aristotle to figure it out. (1) Raising taxes is not the answer GM, for two reasons (1) The petrified citizen - with employment - is NOT going out to spend surplus cash if the social and economic environment is precarious. (Thats the most important aspect and most obvious). (2) If you take air out of a ballon it will shrink - a simple fact of life - much the same will happen with an economy. The proposed increase in taxes as suggested by Mr Rehn yesterday, IMO is somewhat funny. I wonder is he aware of the myriad of STEALTH and double taxes which the Irish have to pay? For example high road taxes and tolled roads? To be sure to be sure....

(2) It's imperative to get people back to work and generating revenue. The strategies recently iniciated by the Governemnet might do this (or go some way towards doing so). IMO if I was them, I would now, be putting ALL my energies into creating employment. From this a root and branceh reform of the transport sector (which is amazingly bad), the administrative sectors, reflecting Governement policies - Quangos - should be tackled now, to allow for a clear and easy mechanism to be put in place, to start a recovery.

(3) The Banks now, should be MADE, give out credit to businesses (AIB, is virtually nationaised, Anglo Irish Bank IS Nationalised, okay... so where is the difficulty here? Could someone please explain that?, Oh I know, the majority of the boards are still there, that doesn't help, hey ho....). The bubble has burst GM but is the mindset in the banks still reliant on sophisticated financial models for generating cash? If not, why can't they do what their forebears did and rely on deposit revenues to generate cash flow and hence pass this onto business?

Yes GM when you say the damage has been done I think you're right but it's the medium term the Government should be worried about now. Growth creation is now whats needed, there is wealth in the country if they stop potential growth now at source then the difficulties will only be prolonged.

The Gombeen Man said...

True, Dakota... a bit of imagination is called for. And, dare I say, might they look at ways of widening the tax net? This would be long overdue, IMO.

You are spot-on about this low-tax nonsense - we are far from it. I mean, you go into the top rate here at a far lower level than the UK, for a start. Then you have all the other taxes. Some of them listed here: Gombeen Nation: They've got to pay just to pray today.

Dakota said...

TBH GM tax IMO is not the answer, it is just a small part of the overall fix, to the problem of shrinking revenues. The problem is, FF are taking the easiest of all routes when they see taxation as the remedy. I know Irelands size and capacity to create fisal stimulus is limited but by rasing taxes, the only growth sectors left in the economy will contract, AGAIN. In addition by taxing exasperated householders with extra direct taxes (without addressing stealth taxation and issues such as transport and credit flow) it stands to reason that individuals WILL NOT SPEND additional cash. Hence the domestic economy will descend further. The real danger at this moment is the precarious global economy and Irelands relative size and openness. While spending cuts IMO (in the right place) are going to be needed to reduce debt, overtly drastic taxation policies at the same time, could be the stimulous to create profound fiscal negativity.
As you say GM, imagination is needed. Create JOBS and the revenues and fiscal growth will flow. If they don't, and quick, and just rely on tax and cuts then 10 years of pain is optimistic.

The Gombeen Man said...

Sure D, I agree with what you're saying. Thing is, nothing is surer than Lenihan will hit the PAYE sector hard to make up that €4.5 billion next budget - and that is the sector that contributes most to Revenue as it stands.

I think there has always been a need to widen the tax base in Ireland, and I think Revenue don't work hard enough to chase taxes from the self-employed. Self assessment? What a joke that is.

Then you have the tax breaks that only self-employed people can avail of, to "shelter" their income. They are boasting about a Film industry scheme in today's Tribune. Revenue gets mine before I get a chance to do anything with it, even if I wanted to. On top of that, the €200,000 tax exile levy has not brought in a single cent, according to Labour's Roisin Shortall

Fintan O'Toole had an excellent article on this, link below. As far as our friends in Revenue are concerned, there were only 12,300 citizens in our lovely little republic with incomes over €250,000, while a 2006 Bank of Ireland report (I assume the Revenue figs are the same year) calculated the numbner of millionaires in Ireland to be 33,000.

Irish patriotism, the rich, and tax returns

Now more than ever, we need the rich to pay their way - and give give some relief to the PAYE sector... and the economy

Anonymous said...

Explain this to me. Why is Ireland the one described as 'busted' when according to this data we are well down the list in terms of the Total debt as a % of GDP (which is the one that really counts). Are we not all busted then?

Italy 115.8
Greece 115.1
Belgium 96.7
France 77.6
Portugal 76.8
Germany 73.2
Malta 69.1
UK 68.1
Austria 66.5
Ireland 64


The Gombeen Man said...

think it is because our GDP figures are artificially high, Martin, due to the high level of multinational activity in the Irish economy. I'd like to see the debt figure as a proportion of GNP.

anna said...

I need to have a good read of all comments above: I also bought Sunday Tribune today, they had a lengthty feature profiling all the rich financial wrongdoers, none of whom it said, had spent a night in jail, so I will ponder and mull on this feature at leisure.
Indeed even the tabloid Irish Sun, not previously noted for erudite journalism, had a very wise front page, which was yet still in keeping with the mood and tone of its readers :
It was just a giant drawing of a gravestone, marked 'Ireland RIP', and underneath the simple lament 'Killed by wanker bankers, and incompetent policitians'.
I also liked 'From Celtic Tiger to Road Kill'- (Reuters)
Even the Independent ( usually has zero intelligent journalism) printed a cartoon of 1916 Rising Leaders, coming out of their graves still in coffins; but the're not the only Irish people who have been insulted- what about all the hardworking dead generations of simple means who had a constant refain from their leaders of" We're poor because the British made us poor/ But some day we'll be rich/ but we all have to tighten our belts for a short while- say about 90 years,Oh maybe it won't be good for you or your children...but it will all be rich when it comes to your grandchildren...look stop whinging about emigration..if 3 generations of your family were touched by it, why blame the Dail? when we are your own Irish government? We're here to see you're not oppressed- like in the days of the nasty brits. Blame the brits ..and then you can go and emigrate over there- *Look this country isn't big enough for us all!*'
** Re this quote- yes Brian Lenihans dad, also a minister did say this in a previosu recession.
I REALLY WOULD LIKE TO THINK IRISH PEOPLE ARE FURIOUS AS NEVER BEFORE :Nearly 100 yrs after founding of the state, people realise it is not enough to be independent if a bastard class rules ypu: they ar eno less bastards for being green ones: now is anyone going on the 1% march , meet stephens green, thsi coming Sat at 1pm??? ( purpose of march; a sight seeing tour of sites associated with the 1%, our ruling class)

The Gombeen Man said...

Who's organising the march, Anna?

ANTHONY said...

I am afraid that Dakota is like a lot of other decent deluded Irish people who thing the problems we are having are surmountable. The problems would be surmountable if we had anyone with a brain in his head in Dail Eireann. Our Minister of Finance, though he may be a decent person, is totally out of his depth as Minister of Finance. How could a legally qualified person be qualified in matters of micro economics. Is it any wonder the poor creature arrived at all hours of the morning, looking the worst for wear, like Cowen does on a typical night out, seeking the assistance of David Mc Williams, economist and author. If poor Brian had any savvy he would have read a few articles that David wrote in the SBB over the past two years or even read David’s book ‘Follow the Money’ he may have learnt a thing or two. But to get back to the point it is a well known fact that if taxation increases beyond a certain point you reach what is termed the point of diminished returns. It is my belief that if the government increase direct or indirect taxation any further then returns will decrease further. We have already reached that point as evidenced by the last two budgets when the deficit is still kicking around €20bn. The country is bleeding to death and we have no qualified doctor to stop the bleeding. What is required is a serious cutting of the public service which has become bloated and inefficient. Rising taxes is not the way to tackle the problem. It was the unions, in conjunction with the criminal bagman Bertie, IBEC and the CIF that has caused our ills. Bertie, the great appeaser, took the easy route and jacked up the cost of the public and private sector by giving themselves increases year after year without any additional productivity What lunatics. The sad thing about theses agreements is that they are enshrined in law and unfortunately what goes up in Ireland does not come down. Now we are paying ourselves wages and salaries that are not and never were sustainable. What people do not realize is that all the increases that happened in the public sector due to benchmarking and in the private sector due to registered agreements cannot be touched unless new legislation is brought in. The government dodged that bullet by bringing in by the back door levies on the public sector to pay for their pensions. Anyone who was watching Frontline last Monday night and listened to Prof Ray Kinsella of UCD that things can be changed about if we have ‘transformational change in politics and economics ‘ he continued to say that if we do not make the necessary changes we are heading down a cul de sac with the IMF waiting at the end. The IMF will implement draconian measures which will include cutting social welfare by 20 to 25% and the public sector numbers by circa 100,000. Prof Kinsella continued to say that ‘over the past 3 budgets FF have taken demand out of the economy that has bled businesses and suffocated them.’ So FF are driving the country into the ground due to incompetence and over reliance on unqualified and inexperienced people in the Dept of Finance who like the regulators were totally asleep at the tiiller. As a consequence we are heading for the rocks and the inevitable shipwreck with the usual loss of life metaphorically speaking. Has anyone asked why there are so many sales in the retail sector in recent times. Its because they could not sell their summer stock. The day is coming due to lack of sales, high commercial rates and rents that part of the retail sector will collapse. I was shocked recently when I went into a massive Dunnes Stores in a major city in the west to see it empty of customers on a Friday evening. There was only one person serving where there was once 4. I was told that due to cutbacks staff were let go. What more is to befall us before the politicians of all hues realize that the country is bankrupt and we need emergency measures, akin to what one would have to do in a war, to rescue us from the sinkhole that we are going to disappear down.

ANTHONY said...

( Continued from last )Unfortunately we are very poorly served by cute hoore politicians in this country. We have no opposition. If FG had any brains at all they would jettison Enda Kenny. If they fail to do so they will allow the Labour party to thrive in the next election which is not what we want to rescue this country from the morass that we are in. Labour would only appease the unions who are the ones, in conjunction with others as alluded to above, who got us into this mess in the first place. The alternate is FF with a new leader, which according to opinion poles could be bluffer Lenihan, which will be hard to swallow. As bad an all as the PD’s were under piggy Harney they did a very good job when first formed in 1986 when direct taxation of the PAYE sector fell considerably. We need an alternate to the shower of bastards we have in Dail Eireann at present. Is there anyone out there, as they say in the X Files, who are willing to form a new party to replace the shower of fuckers we have at present. Probably not because in Paddyland we are all great talkers and knowalls in pubs but when push comes to shove we are spineless. I better sign off before I end up writing a book on the matter.

(I am a Former Contracts Manager of a civil engineering company now defunct)

Dakota said...

@Anthony 14:54 Yep glad you see raising taxes is a bad idea and spending cuts are required. Just to say, I never said that the problem was surmountable. To say I did is taking me out of context. I did say there is potential growth and wealth there.
Also just to say if there is genuinely no alternative to raising taxes (and taxing the same commodity multiple times etc) then there is no future for a generation of individuals in the ROI - and thats the saddest part but yet the most predicable. 15 years being led down the garden path.
As for no opposition, well thats political paralysis for you, 90 years of opposition for opposition sake. Ireland invented the centre ground long before it was fashionable. Politics of poverty. That might change sometime in the future but it's now its needed.....It doesn't give me any pleasure saying it but at the end of the day, the people get the type of politics they deserve.

The Gombeen Man said...

Sadly, that is so true. They've been voting these corrupt shysters in for decades, and there is an "opposition" that can only struggle to equal FF in the polls, despite their (present) unpopularity.

We can't expect this lot to do the right thing folks - so I wouldn't be suprised if they squeeze the PAYE stone some more come the budget. Let's see though.

They will always take the "easy" option, I reckon, even if it's the worst one...

ANTHONY said...

I am in agreement with you Dakota but the alternative is in my dissertation in which I quoted Prof Kinsella who said that we need to cut the public service that increased by circa 78,000 during bagman Bertie’s tenure as so called leader of our country. As I already said a week ago elsewhere on this site we are doomed for 20 years or more and as the past clearly shows we are incapable of running this country and incapable of making any rational decision that makes sense. I quoted hitherto the example of the Port tunnel which cost twice the estimated cost and was constructed too small. It also leaks and has other technical problems that necessitated its closing by the NRA on occasion. Bertie's answer to it being too small was to ban what is termed the supercube truck which is used all over Europe. If we had designed the Golden Gate Bridge it would have been out of date a week later. I also pointed out elsewhere on this site that Paddie & Biddie cheered when the lying criminal and bagman Bertie came out of the Mahon Tribunal. We are well known abroad as a nation of liars and back stabbing bastards. Anyone who has spoken to any Americans or Spanish recently as I have, found out very quickly what they think of us after working here for a number of years. It is not our fault I suppose as we lied for 800 years to landlords under British rule in order to survive. It will probably take a hundred years for us to return to normal, but I doubt it. People may thing I am harsh but if we honestly examine our conscience you will be surprised at what conclusion you come to. We are a nation that does not abide by rules or laws and I could fill this site with examples. The genie is almost out of the bottle and everyone throughout the free world know that we are bust and are run by alcoholics and incompetents that have put their party before the national interest. Now we the morons must pick up the tab which is Anglo Irish Bank that is a black hole for our hard earned money. As I said elsewhere on this site Shanie and half of the board and most of the developers who got money from Anglo were affiliated to FF. Fingers Fingelton from INBS was also FF. (We wont even mention Fas on Baggot Street which must be the HQ of FF.) It is time we realized that FF are a plague on the Irish people that needs to be eradicated forever like the PD’s – hopefully at the next election. Finally I wish to state that we are very lucky, yes lucky, that we elected FF in the last general election otherwise they would have escaped by blaming the new government for our woes. It is time we woke up once and for all and face the facts. Republic how are ya – we need the Brits back to show us how to govern. We are the laughing stock of the world and it gets worse every day these morons are in government. What is the alternate – none – certainly not Enda Kenny or the pro union Labour party. Eventually the penny will drop but it will be too late.

anna said...

workers socailist movement , irish anarchists, website seems ok: i havent seen any mad nutter fluorescent -to -nearradiaoctive green nationalism on it, so may go to march;
not enough protest marches are on Sat: this one is a stroll around the Golden circles city centre haunts- let's see where all our dough went: meeet @ 1.0 on Sat, Wolfe Tone statue , Stephens green,
Incidentally I just heard on RTE, Sean Quinn of Quinn Insurnace ( who got heavily involved with Anglo irish bank- to the extent of owning 1/4 of it) was quoted as saying he will do his best to pay back all the money. Blink.Yes I heard right. And yet 2 yrs ago at a Wankers, oops Bankers dinner Seanie was in great form , proclaiming to the audience, that all would be fine ' Sure child benefit could be cut.' Even though that drew a few gasps from his hard bitten audience , Seanie F has yet to say sorry....or any other irish banker- I do find it significant that Sean Quinn is not from here: No I am not making him out to be a saint as he is from N Ireland- it's just that He's Not from here- this country seems to have an enormous culture of people ducking and diving, and never taking responsibility, to a shocking extent when it comes to our 1% class( who own the rest of us). Actually the lack of taking responsibility for your actions can trickle down to ordinary people- it is only recently that i noticed that even when people have been spectacularly rude to me- they never apologisee- and i notice that far more here than elsewhere

anna said...

Incidentally never mind 1916 leaders turning in their graves at enslavement of our nation to bankers; what about strong socialists like JiM Larkin? this country was V poor on independence, also had strong socialism, so we could have becone Scandinavia _ they were also very poor then, we were 2 of the poorest nations in Europe then- so where did it all go wrong ?