Ireland’s economy is at the eleventh hour…

P O’Neill on A Fistful of Euros has been at the papers already and picked up some deeply worrying signs… Not least this dire warning of a collapse in confidence amongst foreign investors from Shane Ross in the Seanad:

Nobody should be in any doubt that billions of euro left this country for overseas destinations last week. Presumably billions of euro are still leaving as panic is beginning to occur in the money and currency markets. That is an indication of the kind of precipice we are now going over. There seems to be a lack of recognition of this on the Government side of this House because it does not want to face the true facts. The facts are really very serious. I do not say this lightly but believe there is an increasing number of warnings. If anybody goes overseas, he will hear the view of the Irish economy and note it is very different from the one conveyed by Members of this House, the Government and everybody else in Ireland. We are living in a fool’s paradise and are very close to a disaster nationally.

That’s ominous for a number of reasons, not least because foreign investment has been a central feature of Irish Foreign Policy since the Premiership of Sean Lemass in the early sixties. But it may have implications for more than the Republic. Ireland a country that has benefited disproportionately from prolonged sunny macro economic weather stands to suffer more when it turns into a macro economic drought, no matter what policy Government’s hands. H/T Ciaran

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  • Brian Walker

    Roll on the IMF/German bailout. Bonds or cash, gentlemen?

  • Jer

    the south’s share of FDI for 2008 was quite high. According to the National Irish Bank / OCO Investment Performance Monitor for 2008, Ireland attracted 1.9% of mobile Foreign Direct Investment (FDI) in 2008.
    It would be a terrible pity to lose such a strong advantage in the global economy.

    Shane Ross is correct though. IMHO The markets would appear to have lost fate in the southern Govt. statements and have decided to act.

    Markets hate a rudderless state.

  • Mack

    The lads at thepropertypin have been analysing this. At the weekend, I think they’d reached a consensus that there was no serious capital flight from Ireland (yet). The €10 Billion withdrawn being regarded as a relatively small amount.

    The thread starts here :-

    http://www.thepropertypin.com/viewtopic.php?f=19&t=19016

  • Oilifear

    Cowen, Coughlan and Lenihan have made a subtle move from calling on someone to take decisive action to realising that they are the Government and that it is up to them to take decisive action. From there, they made the quiet transition to saying nothing more about it while predicting ominous consequence (presumably if no-one takes decisive action).

    They amaze me with their prowess at ineptitude.

  • Greagoir O’ Frainclin

    “Roll on the IMF/German bailout. Bonds or cash, gentlemen?”

    Ooooooh Cash Please….and directly into the hand.

  • It was Sammy Mc Nally what done it

    Oilifear

    very nicely put – there needs to be a serious debate about a ‘National’ government or an election to try to restore some confidence in the public and internationally that the country has a relatively cunning plan.

  • Conchuir O Fearain

    FF OUT!!! Simple as- Enough is Enough!

  • It was Sammy Mc Nally what done it

    Oilifear

    very nicely put – there needs to be a serious debate about a ‘National’ government or an election to try to restore some confidence in the public and internationally that the country has a relatively cunning plan.

    Micheal O’Leary for Teashop?

  • An fhirinne gharbh

    Oilifear wrote: They amaze me with their prowess at ineptitude.

    Spot on: that’s always been my attitude to Fianna Fail. While others ranted about corruption and dodgy dealings my gripe was that they are simply very bad at their jobs. Look at how they ended up using taxpayers money to compensate victims of child sexual abuse by Catholic clergy. Such negotiating skills! Remember the electronic voting fiasco. Who could forget the baffling traffic signs that had to be taken down within weeks of their introduction because no one could make head nor tail of them. I could go on…

    Here’s something we should consider in the current public/private sector wars: no private company would tolerate the ineptitude of Martin Cullen, Brian Lenihan et al. They’d be the first to go.

  • Greenflag

    ‘Roll on the IMF/German bailout.’

    Of all the major economies the Germans are the only ones not to have primed the Government pump for all they can . I suspect that this is to with the relatively smaller drop in GDP expected in Germany as compared to the USA or UK or Japan . If the Germans do get around to ‘printing ‘ GOvernment paper (a very sensitive issue for them historically ) it will probably only be after the G20 group make the necessary reforms to the world financial system that are necessary if confidence is to be restored and recovery begin .

    US President Obama seems keen on a major overhaul of the financial regulatory structures which failed to halt the neo conservative lemming rush which has characterised the past two decades .

    Ireland/UK will have to wait for the systemic overhaul before any light will be seen .

    And again we can be ‘relieved ‘ that we are in the Euro Zone at this time . Given the present political climate and the attitude of the public sector unions it’s conceivable that with with ‘sovereign ‘ currency favoured by Dave we would be on our way to replicating the Argentinian experience : And those ‘billions ‘ of FDI would already have fled . Argentina is an example of what happens to a State when the various internal interests cannot or will not look beyond their own sectional and short term interests.

    Replace the vested interests of the public sector unions and the ‘official left ‘ with the estanciero mentality of Argentina or ‘rentier’ France in the 18th century and you have a recipe for economic chaos and political unrest leading to semi permanent social instability .

    Lash out at the present Government by all means and replace them come the next election if neccessary but whoever thinks that Messrs Gilmore or Adams can lead this country back to Celtic Tiger days is living on a small island disconnected from the ‘real ‘ world .

  • Ulster McNulty

    “…lead this country back to Celtic Tiger days”

    The days when the Irish borrowed Chinese sweat shop workers hard earned money and pissed it all up against four walls and a roof.

  • Glencoppagagh

    There’s an unhealthy preoccupation with bankers and the Golden Circle. This is due a combination of petty politicking and pandering to common prejudice.
    What people need to realise is that Ireland would be in trouble even if the banks had operated with the utmost prudence and propriety.
    It isn’t Sean Fitzpatrick’s fault that Dell closed. That was the consequence of a disastrous loss of competitiveness, particularly in wages. That can’t be recovered while leaving the public sector unscathed.
    What would restore confidence more than anything would be for the government to get tough with the public sector unions. No more negotiation, just impose the pension levy and challenge the unions to do their worst, if they dare. Once the unions have been faced down, a sine die freeze on public sector pay would be the appropriate next step.

    By the way, if things are this bad, it must be possible to get odds on reunification before 2016 (under the Crown, of course).

  • Ulster McNulty

    “if things are this bad, it must be possible to get odds on reunification before 2016 (under the Crown, of course).”

    Why bring the mountain to Mohammed when you can bring Mohammed to the mountain?

    There is freedom of movement for EU workers. Republic of Ireland nationals are quite entitled to come up north to the UK and work, and send money back to their families down south.

    An influx of RoI nationals would be good for the north, we could coin new names for them, like “the new British”. They could pick our mushrooms.

  • glencoppagagh

    Fair point Ulster but the only employment they’d get would be in the public sector and then you wouldn’t be able to get rid of them.

  • Mack

    Glencoppagh

    What people need to realise is that Ireland would be in trouble even if the banks had operated with the utmost prudence and propriety.

    The property / credit bubble is the absolute core of the problem in Ireland. It is what transforms a cycilical downturn into a depression.

    Construction jobs made up over 20% of all employment in the state, building over 90,000 houses per year (almsot half the number built in the whole of the UK).

    Ireland taxes property transactions via Stamp Duty and VAT on new homes. The bubble led to huge glut in tax revenues which were used to give unsustainable pay rises to public sector workers under the benchh marking scheme. Now the transactions have stopped, that revenue stream is gone, but the high wage bill remains. This is the core of the fiscal crises.

    Compounding the core imbalance there is the fact that the banks wreckless lending has left every Irish bank insolvent.

    Compounding our own domestic troubles we have a serious global downturn and a liquidity crunch just when we need to borrow money to bail out the bankers and pay those unsustainably high salaries!

  • Fine Gael haven’t come out of the past week smelling of ethical roses in terms of indulging the public finances either

    http://northbynorthwestblog.wordpress.com/

  • ulsterfan

    The only Western politician in recent times who transformed the fortunes of a Country was Margaret Thatcher and even now in her old age and suffering from dementia could probably do a better job than the idiots now in power.
    If she were in her prime she would have wiped the floor with these Bankers and Regulators.
    Even CJ Haughey seems to be saintly compared to some of the idiots in political /banking establishment.

  • It was Sammy Mc Nally what done it

    ulsterfan

    Just as Thaterism is being finally debunked ( unregulated free market capitalism ) along comes someone to hail the quareone as as a great heroine – bit like those in the soviet union who have turned Stalin into the hero of socialism.

  • borderline

    UM,

    “They could pick our mushrooms.”

    Our? There is a “we” community in NI, is there?

  • Comrade Stalin

    Sammy, hear hear. Thatcher the economic bust went through about three or four individual boom and bust cycles, then the Tories tried to take the credit for the sustained boom that happened after Labour got into power. You couldn’t make it up.

  • ulsterfan

    Cs
    Can you name a country in Europe which did not go through a boom and bust cycle.
    Thatcher came to power a short time after Labour which under Wilson and Callaghan had the IMF waiting to bail out Britain which technically was bankrupt.
    This led to the winters of discontent.
    Thatcher only inherited a weak economy from labour and Heath.
    Thatcher set about reforming every aspect of British industrial life and was copied by many countries around the world.
    The fools now in charge will pass on to the next generation so much debt it will take 50 years to pay off.

  • Greagoir O’ Frainclin

    Ulster McNulty sounds like a real angry man!

    Prescription:
    Some magic mushrooms for your happy household!

    …and we’ll gladly pick them for you too!

  • Mack

    Thatcherism is a political creed with all sorts of connotations outside of economics. Friedman’s monetarism was the economic model she followed. I’m not sure monetarism has been descredited by the current crises. If anything it’s been vindicated. In response to the 2001 bust the money spigots were turned on, increasing the money supply massively (in the USA they stopped reporting important measures during the ensuing bubble). Monetary theory will tell you increasing the money supply (at a constant velocity of money) will lead to inflation. We didn’t get CPI inflation largely thanks to the fact we purchase most of our goods from the cheap East, look what happened asset prices though..

    —-

    By boom bust cycles, you mean the business cycle. There’s no doubt Thatcher played her part in turning Britain around, cutting taxes, taking on the unions to create a dynamic and responsive labour force. She was helped in her task by copious North Sea oil revenues.

    http://news.bbc.co.uk/onthisday/hi/dates/stories/november/3/newsid_2538000/2538155.stm

    She completely and utterly lacked the human touch, and a reasonable degree of compassion you would expect from the leader of a nation. That she managed to stay in power for so long, I think was a result of the fact that Labour remained in thrall to descredited socialism for most of that period.

  • Driftwood

    Can you name a country in Europe which did not go through a boom and bust cycle.

    Errr.. Switzerland. though I stand to be corrected.

  • Mack

    No Driftwood, the business cycle still occurs there, just ask their bankers today…

    It was the 90’s obession with trying end the business cycle that lead to this current spectacular blow up.

    http://en.wikipedia.org/wiki/Greenspan_put

    Moral hazard, how are ya?

  • Mack

    They had a 3 year recession in the 1990’s

    From wikipedia…

    In the 1990s, Switzerland’s economy was marred by slow growth, having the weakest economic growth in Western Europe. The economy was affected by a 3-year-recession from 1991 to 1993 when the economy contracted by 2%, also became apparent in Switzerland’s energy consumption and export growth rates

    http://en.wikipedia.org/wiki/Economy_of_Switzerland

  • Driftwood

    Mack
    Hardly on the same scale though…

    which country would you prefer to live in?

    I assume Switzerland is in deep shit at present then?
    I was in Geneva a couple of months ago. Recession, what recession?

  • kensei

    Mack

    Friedman’s monetarism was the economic model she followed. I’m not sure monetarism has been descredited by the current crises. If anything it’s been vindicated.

    Really, I want to scream. Do not do this. “Monetarism” or “Supply side economics” is really a big catch all for all kinds of right wing economic policy. No one seriously doubts that monetary policy is an incredibly useful tool for cooling or boosting economies and controlling inflation in normal times, and is a quicker and more effective lever than fiscal policy. But the idea that it is the whole show has been carpet bombed, and when you’ve run up against the zero lower bound, you need to start examining other levers, because that one is off the table.

    Lots of the other things that got lumped in with that like the idea the market captures all risk in the price or we can get by with no regulation and limited enforcement of competition policy has been fairly comprehensively debunked.

    We need to stop looking at this as ideological battles to win or lost, and look at a set of tools and ideas for dealing with specific problems.

  • Driftwood

    Just for the record:

    International statistics
    Median household income for selected countries is shown in the table below. The data for each country has been converted to U.S. dollars using purchasing power parity (PPP) (obtained from the Organisation for Economic Co-operation and Development).[3] Note that PPP-adjusted household income is not reflective of relative buying power (or prosperity) between countries because different governments subsidize different services (see Common Misunderstandings section).

    Country Median household income national currency units Year PPP rate (OECD) Median household income (PPP)
    Switzerland[4] 95,184 CHF 2005 1.74 $55,000
    California, US[5] US State $54,000
    United States 48,000 USD 2006 1.00 $48,000
    Canada [6] 53,634 CAD 2005 1.21 $44,000
    New Zealand [7] 62,556 NZD 2007 1.54 $41,000
    United Kingdom [8] 24,700 GBP 2004 0.632 $39,000
    Australia[9] 53,404 AUD 2006 1.41 $38,000
    Israel[10] 107,820 ILS 2006 2.90 $37,000
    Ireland 35,410 EUR 2005 1.02 $35,000
    Scotland,
    United Kingdom[11] 21,892 GBP 2005 0.649 $34,000
    West Virginia, US[12] US state $33,000
    Hong Kong[13] 186,000 HKD 2005 5.96 $31,000
    Singapore[14] 45,960 SGD 2005 1.55 $30,000

    But things change rapidly…..

    I guess no eleventh hour in Geneva though..

  • Dave

    Well, Kensei, the biggest loser is your pet love of Keynesianism, isn’t it? All that money in circulation and all those folks busy spending it didn’t generate the promised wealth on the demand-side after all – only massive amounts of debt.

    It’s odd that the good times stopped rollin’ when the leverage ratios maxed out, innit? Anyone would think that the monetary policy failed to create the wealth that it promised.

    But look on the bright side: Ireland’s banks, despite the hysteria, are in better shape than other members of the bankrupt Eurozone. AIB, for example, has a leverage ratio of 19 and no exposure to securities, whereas Germany’s average leverage ratio is 52 and its banks are tangled up in toxic.

  • Harry Flashman

    Thatcher’s main problem is that she slayed two dragons that were already knackered by the time she came into office and didn’t notice (until too late) the two great big behemoths slouching forwards to be born.

    Defeating the Soviet Union and the militant unions of the nationalised industries were very necessary outcomes but frankly they would probably have occurred anyway perhaps a mere decade later than they did, that said she must be given the laurel for those victories.

    However whilst taking them on, Thatcher did nothing to curb the horrific growth of the government sector (one of the great myths is that Maggie “slashed public spending” she did no such thing) which combined with public sector union militancy and massively unfunded pension requirements could cripple the British economy in the same way that the coal miners and car workers did in the ’70s.

    Meanwhile Britain surrenders vast swathes of sovereignty and freedom to a much more sinister (because much more cleverly disguised) continental superstate that challenges the liberty and democracy of Europeans more than Leonid Brezhnev and his zombie successors ever did. Both of these monsters were given their head on Maggie’s watch and she must receive a lot of the blame for allowing them to arise.

    But to blame the current mess on the policies of Reagan and Thatcher is as absurd as to blame Harold Wilson for the recession of the early ’90s. This recession has its roots firmly in the policies of Clinton and Greenspan and Blair and Brown.

    You’ll forgive me if I can’t recall the bit where Milton Friedman suggested unregulated growth in government spending funded by cheap credit and massive public debt, I must have missed that lecture.

    No I’m afraid it’s deja vu all over again, in the 1940’s the Labour government overspent, over-borrowed, devalued the Pound and wrecked the economy, in the 1960’s the Labour government overspent, over-borrowed, devalued the Pound and wrecked the economy, in the 1970’s the Labour government overspent, over-borrowed, devalued the Pound and wrecked the economy.

    In 1997 the Labour Party got into government again and gee whizz look what happened, who’da thunkit?

    Time for the Tories to clean up the mess again.