The Irish Economy

Well! The Irish Budget which promised draconian cuts in expenditure certainly lived up to expectations with most of the burden falling on public servants and welfare recipients. Naturally both Trade Unions and members are extremely angry as a result. However the important question that really arises relates to the existence - if any - of more palatable alternatives. From one perspective I actually applaud Brian Lenihan for at least having the guts and leadership qualities to follow through on what he considered necessary and yet which was bound to be highly unpopular among large sections of the population. And indeed there is a valid case for the measures he took. Overall expenditure is way out of line with revenue receipts. Also surveys show that public sector pay in general is much higher than the private sector in an economy that is seriously lacking in competitiveness. Quite simply the price of most products and services is excessive at present in Ireland. Likewise due to an actual

"Prime Time" last night on RTE dealt with the issue of social welfare fraud. The total Social Welfare bill in Ireland is currently running at over €20 bl. per annum with at least 10% of this relating to fraudulent claims. Thus at a time when stringent cuts in expenditure are required we have a massive case of over-spending that simply is not being properly addressed. Unfortunately to a certain extent we have long had a mentality - no doubt relating to our colonial past - that leads to a lot of petty fraud. Many people while paying lip service to the system do not really respect it. So if telling a little white lie, or indeed a big major lie (and perhaps many such lies) helps people beat the system in some way they feel justified in doing so taking comfort from the assertion "Well! isn't everyone doing it? In a recent survey for example it was found that up to 70% of people taking out car insurance in one county had lied in providing information. Many who are self emp

The Health Minister, Mary Harney has mentioned a new proposal (likely to be included in the forthcoming Budget) regarding the making of a nominal charge (50c) for every prescription. As well as providing some additional revenue to the Exchequer this would perhaps have the benefit of discouraging many freely availing of prescriptions (on the Medical Card) which they don't subsequently use. It is estimated that up to a quarter of the drugs dispensed by pharmacies in this way are wasted! However there are more serious issues that need to be addressed. A critical matter relates to the fact that the cost of drugs in Ireland is exceptionally high compared to other countries. One important contributing factor relates to the excessive mark-up enjoyed by pharmacies for dispensing drugs. In fairness this was addressed earlier in the year by the Minister leading to a tentative compromise resolution with the pharmacies in August. However the key factor has not yet been addressed which rela

There is a great deal of unrest with much simmering anger evident in Ireland at present. The economy is in deep recession with borrowing rapidly mounting (both in the public sector and private households). Meanwhile the Government is making preparations to bring in a draconian budget which threatens to depress living standards further for those already struggling to make ends meet. How have we got ourselves into such a mess? Also what is the best way forward in such trying circumstances? On the face of it per capita income in Ireland is still very high and - indeed - well above the EU average (which - by world standards - remains a highly privileged area). Yet so many people genuinely seem to be faced here with real financial worries and potential hardship. There are indeed many possible explanations for this. Firstly, because of the highly artificial nature of the Irish economy. which is so dependent on multinational activity, official figures overstate true per capita income. Seco

I have considered for many years that the Irish economy suffers from a fundamental lack of competitiveness. Unfortunately this was persistently ignored during the crazy property bubble years of the 2 nd phase of the Celtic Tiger. So what was misleadingly trumpeted then by politicians as "inherent strengths" of the Irish economy e.g. continuing high growth and employment were in effect hiding the true reality of a highly artificial economy, with bad value and poor work practices evident in every sector. One of the unchallenged assumptions that was made here was that removal of barriers in the EU internal market would in itself guarantee competition in Ireland. However for a number of reasons this argument is highly suspect due to grave faults with respect to the way the market operates. Though the market works better in relation to freely traded goods, even here major impediments exist. For example Governments prevent cars being freely imported from lower price jurisdiction

There is little doubt that Ireland is in the grips of a deep recession at present. The inflation rate is currently - 6.5% (on an annualised basis) and real output could fall by 10% this year. Because liquidity is so tight with banks at present many small and medium sized businesses are finding it extremely difficult to survive. In deed it is heartbreaking to hear on programmes like Joe Duffy's " Liveline " the incredible pressures that many of these are now, with unpaid debts mounting and the prospects of survival looking slim. We all know the reasons why banks are refusing these firms credit. Because of the huge losses they have suffered from wildly speculative lending during the property boom, their balance sheets are now in a bad way. Therefore they have a vested interest in preserving money to meet uncertain future liabilities, rather than lend it to stressed businesses in the midst of a recession. And despite all the efforts of the Government here at capitali

It was fascinating following the three BBC Money Programmes on the financial crisis following the collapse a year ago of Lehman Bros. My gut instinct at the time was that the situation was gravely serious. I indeed considered for how long money could be withdrawn from bank deposits and whether the Government here would be able to maintain payment to public sector workers. Then when the system survived I began to wonder whether my initial fears represented an over-reaction. Viewing however the re-enactment of the Lehman collapse and the great uncertainty which followed, I can now see that my fears were indeed well grounded with the international financial system literally hanging on the edge of a precipice and the very real threat of total collapse a genuine possibility. Now a year later we are beginning to hear optimistic noises regarding the prospects of economic recovery. Today for example the IMF has forecast an overall drop in world output of just 1% for 2009 with a return to a ver

The success of the Irish Celtic Tiger (1994 - 2008) can basically be divided into two main phases. The first more successful phase witnessed a tremendous expansion in multinational corporate investment in Ireland (largely of US origin). Exports were the main driver of growth during this period dramatically surging from less than €30 bl. in 1994 to over €90 bl. (current prices) by 2000. For anyone who studied these figures an alarming trend however was in evidence post 2000 with merchandise export growth completely stalling. So present figures are now lower (even in current price terms) than almost a decade previously. Though there were worrying signs in evidence by 2000 that the property boom had already grown out of control, such fears were quickly disregarded. So after a brief slowdown lasting a couple of years (2001-2002) - the second phase of the Celtic Tiger took off almost entirely fuelled by a hugely artificial property bubble. As we now are now slowly coming to terms with

I was looking at Pat Kenny's " Frontline " Programme last night. It was dealing with the forthcoming budget and the need to achieve dramatic cuts with respect to Government expenditure. As things stand the deficit will be about €20 bl. with revenue set to exceed €60 bl. and tax revenue not much more than €40 bl. So this gross excess of expenditure over income is clearly not sustainable and therefore needs to be controlled. The audience was largely made up of public and private sector workers arranged in two separate groups. However it quickly became apparent that they were simply unable to address the overall financial issue. Everyone seemed completely locked into their own particular perspectives made even more rigid by a perceived sense of injustice with respect to the present situation. Therefore there was no appetite anywhere for either a reduction in Government expenditure or alternatively for further increased taxation (as a means of closing the gap). Based on the

As I write, more information has been provided by the Government on the proposed NAMA rescue plan. For example we now know that the total value of loans transferred to the Agency will be €77bl. (including €9bl. rolled up in interest). Against an estimated current market value of €47bl., NAMA will be offering €54bl. So on the face of it this would represent a premium to the banks of €7bl. However much of these calculations are very questionable. If we exclude the interest the remaining value of the loans would be €68bl. To then suggest that these loans would have a current market value of €47bl. seems to me far too high. (The Government claims that the actual value of property against which these loans were issued is in fact €88bl. due to developers commiting the remaining €11bl. of their own funds. However I would remain highly sceptical that this actually is the case!) Therefore the true premium in payment to the banks is likely to much higher than €7bl. So as many critics suggested,

Here in Ireland we are preparing for a second vote on the Lisbon Treaty and as we are the only country in the EU required to hold a referendum on the issue its outcome may exercise a considerable effect on the overall development of Europe. The background to this Treaty (also referred to as the Reform Treaty) is quite complex. The European Union has been rapidly growing in recent years with 12 new members (from Central and Eastern Europe) joining since 2004. Obviously this poses new difficulties with respect to effective administration. So several changes with respect to key institutions e.g. Council of Europe, the Commission and EU Parliament are proposed. Also it has been deemed timely to now collate and also amend the growing legislation that has been accumulated since the founding of the Union. So in many ways the Reform Treaty is designed to act as a statement of what has already been achieved in the EU whilst providing the framework for effective progress in the future. Sta

The setting up of NAMA (National Asset Management Agency) here in Ireland is rightly achieving a great deal of attention at present from politicians, economists and the public at large. It is truly a massive undertaking proposing to transfer to the agency some 90 billion euro of bank loans made to developers amidst the mania of the Celtic Tiger boom, thereby creating perhaps the largest property company in the world. As the result of so many bad loans the banking system was in dire straits. So the government first rowed in to provide a guarantee to depositors, and then later went some way to recapitalising the banks. However due to the extent of the crisis (with most loans now likely to realise considerably less than their book value) the Government has now set up this agency in a further dramatic step to restore banking confidence. So the agency intends to take these loans from the banks (a great deal of which are toxic) while promising to pay a sum for them which is likely

Here in Ireland we have sailed into very troubled economic waters which are likely to remain so for a considerable time to come. While most European economies have been suffering due to the financially induced international recession, Ireland's problems have been compounded by the collapse of a greatly over hyped property boom. Now, as so many false dreams lie in tatters the blame game has started in earnest with the Government, bankers and developers mainly in the firing line. However the phenomenon of a boom is in fact a lot more complex reflecting a moral deficiency shared to a greater or lesser extent by the whole population. During the Celtic Tiger years in Ireland a remarkable shift in values took place. The traditional system fostered by the Catholic Church gave way to an increasingly materialistic self serving attitude affecting all walks of life. From this new perspective everyone seemed to be benefit as long as the Tiger continued. Government revenues soared due to rampan