The Irish Economy

Since I last wrote several significant developments have taken place making it clear that the present crisis both in Ireland and in Europe is much deeper that initially realised. Indeed there is an even growing risk now that the whole financial system - not just in Ireland - but in the Eurozone generally could spiral out of control with disastrous consequences for its citizens. And unfortunately this risk is aggravated through a lack of effective action at the EU level (where intervention is most necessary). To be honest I was deeply shocked at the manner in which the EU reacted to the growing Irish problems last week. Though I have been a persistent critic of the terrible mismanagement of our economy (especially since 2000) at least I could not fault the Government for its determination to play by European rules. So for example, despite considerable domestic criticism, Brian Lenihan consistently maintained the Government's intention to fully redeem all senior bondholders in o...

Things are not looking good at present in Ireland with an enforced economic bailout from the EU/IMF Stability Facility in the new year looking ever more likely. Unfortunately the damage already done to the economy during the totally reckless latter phases of the Celtic Tiger has been so great that in truth it is hard to see how any credible response can now be made to deal with the financial implications. As I had always feared, losses from the banking system have been much greater than recognised. Indeed I suspected that the government was engaging in an unconvincing game of bluff in hiding the extent of such losses. From an initial position that the banks "would cost us nothing" it is now admitted that the losses will be in the order of €50 bl. (which unfortunately is likely to be a severe underestimate). The projections with respect to property prices on which these figures were made were far too optimistic. Furthermore there is a considerable amount of - yet - unreco...

It struck me recently that the prolonged recessions (lasting up to a decade a length) have been a consistent feature of the Irish economy since independence. Furthermore these recessions have occurred on a fairly regular 30 year cycle. When we obtained our Independence in 1922, the country became ravaged by a very damaging Civil War. Manufacturing industry was practically non-existent with the country almost totally dependent on agricultural production. Though little progress was made during this first decade of freedom, surprisingly, in a qualified fashion, the economy started to revive during the era of the Great Depression. The high tariff barriers now in place enabled the replacement of - formerly - imported commodities by new domestic firms. Also the Government, recognising the lack of private capital took the initiative in setting up several large state-owned enterprises. Then we escaped the worst ravages of the 2nd World War through our neutral stance. However during the ne...

I must admit that I enjoy reading the economic columns of David McWilliams. Whereas I do not generally agree with him with respect to the fine detail implications of his proposals, he invariably however manages to make interesting suggestions assisting valuable reflection. In this morning’s Sunday Business Post article, he addresses the present situation in Iceland, where apparently interest rates on long term bonds have now fallen below corresponding recent - and still rising - rates in Ireland. And given that a short time ago Iceland was looked on as the undisputed financial basket case of Europe, this indeed is a disturbing revelation. One has to admire the resilience of the Icelanders in dealing with their problems. Though they did require IMF assistance, they refused to bail out their banks with the losses therefore falling on depositors and lenders (rather than as in Ireland on the shareholders). Also in allowing depreciation of their currency, they have thereby ma...

It is now some months since I last wrote regarding the Irish banking crisis and unfortunately the situation has worsened since then with debts accumulating at an even faster rate than previously expected. Also because of our accompanying severe fiscal crisis, international confidence has steadily receded. This in turn has led to sharply rising interest rates in the bond markets, which could yet prove a vital tipping point for the economy. Realistically speaking, there is no easy solution to our problems. The present Government lacks true legitimacy (with Fianna Fail having presided over the very crisis that it is now trying to solve). However there is little reason to suggest that the main opposition parties would bring about any real improvement. A new Government is likely to entail a coalition arrangement of Fine Gael and Labour. Enda Kenny the leader of FG and - likely - larger party after the next election is thereby in line to become Taoiseach. However he seems to lack suffic...

Once again Anglo Irish Bank is in the news - for all the wrong reasons. This week it is about to announce the largest corporate losses in Irish financial history which could be - if reports are right - as high as €14 bl. Having already received in the region of €4 bl. last year in Gov. capitalisation, it looks like a further $7 bl. or so further handouts from the Government will now be additionally required to keep the bank functioning. And it would take a great deal of optimism to believe that this will be the end of the story! Not surprisingly when the public hears of the horrendous losses made by this one bank (that has no branch network) the cries go up to close it down immediately so as to avoid further losses. However though understandable at one level such a policy is not realistic. The losses that arise relate to the excessive loans extended during the Celtic Tiger to fund - in the main - highly extravagant commercial property developments both here in Ireland, the UK and the U...

Unemployment is truly a great scourge in economic and social terms. It is welcome therefore to see that the main motivation of some of our most popular analysts (such as David McWilliams and George Lee) has arisen out of a genuine desire to deal with unemployment ills. The present statistics however are certainly not encouraging. The official figure (for standardised unemployment) has risen from 4.8% in Jan. 2008 to 12.7% in Jan 2010. However this does not convey the full story regarding worsening unemployment conditions. According to the methodology by which standard rates are assessed, 1 hrs. paid work a week would exclude one from the unemployed statistics! However, we have also many others - still listed as employed - who may however have suffered a significant drop in working hours or in temporary contract work that may not be continued. And even for those not yet directly affected a much greater degree of uncertainty exists with respect to the security of their employment...

A major issue has arisen at Dublin Airport with Michael O'Leary once again centre stage. It appears that 200 aircraft maintenance jobs have been lost to Prestwick Airport due to the inaction of The Minister for Enterprise Trade and Employment (Mary Coughlan). Cleverly, by highlighting that these jobs have already gone with a further 300 still up for grabs he has considerably raised the political stakes with respect to the Government's response. The background to the dispute is as follows. For many years a large skilled base of aircraft maintenance engineers existed at Dublin Airport formerly known as Team Aer Lingus and more recently as SR Technics. However due to the pressures in the airline sector SR Technics (a Zurich based firm) announced in early 2009 that it was to cease operations in Ireland with the loss of over 1100 jobs (citing the high costs of doing business at Dublin Airport as a major factor). The Dublin Airport Authority (DAA) which is responsible for the running...

Attempting to follow the litany of problems faced by the banking system here in Ireland would lead one almost to despair! Though we knew more than a year ago that they faced horrendous difficulties, the continually evolving situation reveals them as much worse than originally anticipated. In September 2008 following the Lehman crisis the Government took the unprecedented step of guaranteeing bank deposits to the sum of €400 bl. At first we were assured that this move was due solely as a result of a temporary liquidity crisis in the banking system (triggered by the international financial upheaval at the time). However it quickly emerged that one of the banks Anglo Irish - with no branch network - had accumulated huge losses on loans mainly to the commercial property and would need to be nationalised (costing the taxpayer countless billions). Then it became apparent that the other banks were all very much under capitalised (thereby requiring the State to pour in additional billions of t...

So George Lee has left Fine Gael after just 9 months in the party. How much things have changed since the heady heights of his sensational by-election triumph last May! In the eyes of many he was seen as the new political messiah for Fine Gael bringing the promise of fresh economic thinking and future electoral success. However it has all turned sour so very quickly. Frankly I was surprised when Lee left his influential post as RTE's revered economics correspondent, a role for which he was clearly designed and in which he excelled. Apart from correctly alerting listeners regarding the flawed nature of Celtic Tiger policies, the reports gained additional credibility through his communication skills and a sincere emotional engagement with the issues involved. So in this respect he did not fit the stereotype of the detached economics observer and was all the more loved for that very reason! However on the negative side, Lee's reports rarely displayed great detail or original...

It has been very strange living In Ireland in recent times. Ireland is a country which even at the best of times experiences a great deal of rainfall. And during summer 2009 we had one of the wettest Summers on record. Then in November the country experienced some of the worst floods in living memory. This was followed - starting in mid-December - by a long spell of snow and ice. Yet after all this we are experiencing great problems with our water supply. For example in Dublin many houses have been cut off for several days. In many others water supply has been greatly restricted. What on Earth is happening? Unfortunately heavy rainfall does not necessarily translate into a properly functioning water supply. Like so much other infrastructure, insufficient attention has been paid to the maintenance of the water system in Dublin and elsewhere in the country. Most of the underground piping that serves Dublin was laid in the late 19th century (when the population of the city...