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The Recession and Ireland: A test of nerve

20 March 2009 / 10:03:08  GRReporter
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Seamus Shortall

Exclusively for grreporter.info

Ireland's people are certainly in shock about the economic changes but the Republic's citizens have no history of violent confrontation or protest on economic matters as it is the practice in Greece. So far, there has been a union-organized protest march by about 100,000, on a Saturday, to avoid disrupting business. It was very quiet, polite and well-managed. Then, this month, the Civil-Service union representing low-paid workers had a one-day strike. The Irish don't want to give a bad impression internationally again as it is the practice in Greece. They know they're in trouble but that they need to be seen as a safe place to do business and to be visited by tourists.

675,000 people attended the Dublin St Patrick's Day parade, and there was no trouble or protest of any kind, just fun and revelry.  In the White House, the Irish delegation celebrated the national day with President Barack Obama, a signal of the valuable sentimental link between Ireland and the USA. The White House will host a similar celebration next week for the Greek national day – 25th of March. In relation to Northern Ireland politics, there have been two fatal attacks on British Army and local police personnel. These are by dissident nationalist militants. It's a serious problem, but involving a small number of people.

Economically, Ireland's budget was based too much on income from the property boom and this has crashed and stopped rather abruptly making it difficult for the state to adjust the public expenditures. Tax receipts are down 25% and unemployment is rising quite rapidly. The iconic Waterford Glass factory has failed. Computer-maker, Dell has cut thousands of jobs there. Maybe 12% will be unemployed by the end of the year. Public service workers have had pay cuts of up to 8%. In Greece, people cannot reach an agreement about whether public employers should keep their current salaries or they should be raised. There will be an emergency budget next month making more expenditure cuts and raising more taxes as they try to stay under borrowing of 9.5% of GDP. Sentiment is that people would rather have one more tough budget and then, hopefully, no more bad news after that. There is a strongly felt need to impress foreign backers that the budget can be controlled. It seems that in Greece, no one is considering the foreign investors.

Compounding Ireland's problem is the crash of property market values by about 40% and the discovery of reckless management in one of its banks (Anglo Irish Bank) which had to be taken over by the state. The directors and their friends were borrowing huge amounts for property speculation and securing the loans on the bank's own shares. That and some artificial lodgments (one of 8bn euro) to manipulate the share price has demolished the banks credibility and affected confidence in other Irish banks that cooperated with Anglo. The Irish government is exposed to unknown bad debts secured on properties whose value has fallen sharply. The banking scandal  and property market uncertainty has tainted the reputation of Ireland's banking system and caused outflow of large sums of money.

Ireland's overall national debt to GDP ratio is comparatively low compared to Italy, the UK or Greece but there's a big shortage of credit and Ireland is being charged high insurance rates on the loans because of the uncertain state of its banks which are guaranteed by the government. They're exposed to the property market and default by unemployed workers and failing property developers. Furthermore, the sterling devaluation is affecting Ireland's trade with the UK, its biggest customer. Consumer confidence is down because of all the uncertainty, so while there is still plenty of money around, nobody wants to spend it.

So, tough times are certain for the Irish and maybe more to come. Ireland's hopes are pinned on regaining international confidence by stronger banking regulation, prudent management of the public finances and the promotion of a well-educated, disciplined English-speaking workforce with access to the Eurozone and UK markets.

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