Skip to main content

Post Property Bubble Ireland - Economic Crisis 2009

Ireland plans drastic cuts to prevent debt crisis...

Ireland is to demand pay cuts for civil servants and public employees to prevent the budget deficit soaring to 12pc of gross domestic product by next year – becoming the first country in the eurozone to resort to 1930s-style wage deflation to claw back competitiveness.

"We will take whatever decisions are necessary," said premier Brian Cowen. The Taoiseach yesterday denied reports that he invoked the spectre of the International Monetary Fund to terrify the trade unions into submission. But the threat – uttered or not – has been picked up nevertheless by labour leaders.

"The IMF's normal prescription in such situations involves mass dismissals and pay cuts, along with cuts in pensions," said Dan Murphy, head of the public service union, who accepts the need for draconian retrenchment.

The budget deficit will soar to 9.6pc of GDP this year as property tax revenues collapse. It is so far above the EU's Maastricht limit of 3pc that Brussels will have to impose sanctions. It is still rising fast.

"On the basis of existing policy, A General Government Deficit in the range of 11pc to 12pc of GDP is in prospect for each of the years to 2013. This is untenable," said the finance ministry in a fresh revision to its (already dire) Stability Programme. It has drafted a swingeing five-year plan, slashing spending by €16bn (£14.4bn) or 8pc of GDP by 2013.

The markets are watching nervously. Yields on Irish 10-year bonds have risen to 180 basis points over German Bunds. Standard & Poor's has issued a "negative outlook" alert on Ireland's AAA rating, noting that the bank bail-out has increased state liabilities by 228pc of GDP. This guarantee may be tested. While Dublin's "Canary Dwarf" has been a success story – leading a finance sector that makes up nearly 10pc of Irish output – it has also become an Achilles Heel.

Chris Pryce from Fitch Ratings said Ireland had shown great courage by facing up to the full implications of the global crisis earlier than others. "We're very impressed by the vigour of the Irish government," he said. Even so, the public debt will jump from 25pc of GDP in 2007 to 62pc by 2010.

It is a grim moment for the Celtic Tiger after achieving so much as a high-tech hub with an educated work-force and one of the most flexible economies in the world – all qualities that should help the country pull through in the end.

Dublin expects the economy to shrink by 4pc this year as the post-bubble hangover goes from bad to worse. Unemployment will hit 12pc by December, up from 4.9pc in early 2008.

Ireland is paying the price for letting wages spiral upwards during the long boom, eating away at competitiveness. The computer group Dell, Ireland's top exporter, has stunned the country by announcing plans to shift its EU manufacturing arm from Limerick to Poland, taking 4pc of Irish GDP with it. Workers in Eastern Europe are closing the technology gap, and they are much cheaper.

Dublin house prices have fallen 28pc from their peak. Professor Morgan Kelly from University College Dublin – the first to predict last year that Irish banks would need a state rescue – fears that prices will drop 80pc in real terms before the glut of unsold property is cleared.

"It has taken us 10 years to get into this situation. It will in all likelihood take us 10 years to get out of it. Construction will fall to zero for the foreseeable future," he told a Dublin conference. There may be net "demolition".

It is hot debate whether euro membership is making matters worse at this stage. The country has not been able to "get ahead of the curve" over the last year by slashing interest rates. Indeed, Frankfurt raised rates in July.

The euro has jumped almost 30pc against sterling in a year. This amounts to an "asymmetric shock" for Ireland, which depends on Britain for 21pc of its exports. John Whelan, head of the Irish Exporters Association, said the strong euro puts100,000 jobs at risk this year.

"Most companies cannot make money selling into the UK at an exchange rate above 0.80 pence and today the euro is worth 0.91 pence. Currency hedges will run out by March, and the small guys are feeling the full whack instantly," he said.

Mr Whelan said there was a feeling of betrayal that Britain did not join the euro alongside Ireland – or shortly after – despite Labour's pledge to do so.

"We thought Britain would join in 2003, but then Tony Blair lost his popularity in Iraq and never tried," he said.

Finance Minister Brian Lenihan has even accused Britain of pursuing a beggar-thy-neighbour strategy.



Report by Ambrose Evans-Pritchard - UK Telegraph.

Popular posts from this blog

Ireland's Celtic Tiger Excesses...

'Bang twins' may never get to run a business again... POST-boom Ireland is awash with cautionary tales of Celtic Tiger excesses, as a rattle around the carcasses of fallen property developers and entrepreneurs will show. Few can compete with the so-called Bang twins for youth, glamour and tasteful extravagance. Simon and Christian Stokes, the 35-year-old identical twins behind Bang Cafe and exclusive private members club, Residence, saw their entire business go bust with debts of €9m, €3m of which is owed to the tax man. The debt may be in the ha'penny place compared with the eye-watering billions owed by some of their former customers. But their fall has been arguably steeper and more damning than some of the country's richest tycoons. Last week, further humiliation was heaped on them with revelations that even as their businesses were going under, the twins spent €146,000 of company money in 18 months on designer shopping sprees, five star holidays and sumptu

Property Tycoon's Dolce Vita Ends...

Tycoon's dolce vita ends as art seized... THE Dublin city sheriff has seized an art collection and other valuables from the Ailesbury Road home of fallen property developer Bernard McNamara. The collection will be sold to help pay his debts. The sheriff, Brendan Walsh, is believed to have moved against the property developer within the past fortnight, calling to his salubrious Dublin 4 home acting on a court order to seize anything of value from his home to reimburse his creditors. The sheriff is believed to have taken paintings from the family home along with a small number of other items. The development marks a new low for Mr McNamara, once one of Ireland's richest men but who now owes €1.5bn . The property developer and former county councillor from Clare turned the building firm founded by his father Michael into one of the biggest in Ireland. He is the highest-profile former tycoon to date to be targeted by bailiffs, signalling just how far some of Ireland's billionai

I fear a very different kind of property crash

While 80% of people over 40 own their own home just a third of adults under 40 do. This is disastrous for social solidarity and cohesion Changing this system of policymaking requires a government to act in a way that may be uncomfortable for some. Governments have a horizon of no more than five years, and the housing issue requires long-term planning. The Department of Public Expenditure and Reform was intended to tackle some of these problems. According to its website its remit is to “drive the delivery of better public services, living standards and infrastructure for the people of Ireland by enhancing governance, building capacity and delivering effectively”. So how is the challenge of delivering homes for people in 2024 and beyond going to be met? The extent of the problem is visible in the move by companies, including Ryanair, to buy properties to house staff. Ryanair has, justifiably, defended its right to do so. IPAV has long articulated its views on how to improve supply an