Paddy bashing in the Sunday Times?

The Sunday Times ran a piece, entitled Bad Luck of The Irish, covering the impact of the current recession. It poses the question “Could Ireland be the first euro country to go bust?”, without running a comparison. They almost certainly mean Eurozone, but it’s not made explicit. Greece would be our nearest competitors in that regard, but as the FT recently pointed out – Ireland is taking it’s position seriously and making the hard decisions, Greece is not. However, the report also contains this gem

“If you think the British economy is a mess, spare a thought for the neighbours”.

The author clearly thinks we (Ireland) are in a worse predictament than the UK. I beg to differ. James Carville once famously remarked “When I come back I want to come back as the bond market, because then you can intimidate everybody”. The bond market will be key for both economies. The crucial difference between Ireland and the UK is the former’s membership of the Eurzone. While Irish bonds trade at a wide spread over German bonds, the Euro has maintained it’s value well so far and investors are not displaying a lack of appetite for Euro debt, the same cannot be said for Sterling.

UK and Ireland head to head below the fold
Existing Borrowing Debt GDP Ratio :
Ireland : 24.9%
UK : 43.60%

Countries by public debt to GDP

Budget deficit :
Ireland – 9.5%
UK – 11%

Bank Bailouts
Nouriel Roubini is quoted as saying if an Irish instituition were to fail the cost would be 250% of GDP. This is hyperbole, a worst case scenario that likely won’t arise. It’s not the cost of bailing out one instituition that is 250%, but them all! Even that may be an exageration. Ireland’s GDP is in the region of $250 billion, total liabilities under the bank guarantee scheme run to €400 bn. It’s important to note that Irish banks aren’t very highly leveraged (unlike British and European banks, as pointed out by Commenter Dave) and that they don’t have big derivative exposures. They have made a lot of loans to property developers some of the outstanding deb will have to be written off, but the cost will be an order of magnitude lower than the €400 bn total liabilities.

Financial services play a larger and more important role in the UK economy. Could the UK exchequer afford bail out the entire financial system, which is much larger in proportion to the size of the UK economy? Highly unlikely.

Issuing Bonds
Ireland’s last Bond auction – succesfull
UK’s last bond auction – problematic. The 30% collapse in Sterling’s value is clearly impacting on the appetite of foreign investors for Sterling assets.

Two ECB governors recently hinted that the ECB may implement QE, which would involve the ECB purchasing member states government bonds. Both the UK and Ireland need to borrow to fund their economies during this downturn.

Balance of trade
Ireland – Imports falling faster than exports has led to a surplus in Ireland
UK – Balance of trade continues to deteriorate.

  • Frustrated Democrat

    mack

    Selective in your statistics?

  • Mack

    FD – Of course, as was the original author. The way I see it, from Ireland’s perspective the most important issue is the budget deficit coupled with the ability to borrow. These appear to be more rosy for Ireland than the UK.

  • Bleá Cliathach

    I share a similar view Mack.

    I just cant see where the UK is going to get the extra money it needs through the issueing bonds to print more sterling. Looking again, how international financial houses are going to view the UKs ability to finance repayments of it’s natinal debt is another concern. They heavy days of finance workers earning large salaries and exorberant bonuses in the City are over. The subsequent drop in tax take has got to be very concerning. The fact that the UK banks toxic debts are more toxic than the Irish banks is also of more concern. The UK banks tended to invest in the really dodgy subprime derivitives where there is very little comeback while the Irish may have invested in property the assets are at the moment at a lower value but in time will regain at least some of their former value.

    I’ve personally felt that the theres alot of spin being flouted by the bankers in london about the Irish banks.(Especially some of the woefully sensational reporting from the mail on sunday which i will now make a point of not buying not that I’d buy it in the first place) They’re trying to make them the ‘Patsys’ in this whole sorry mess to distract from their more perrilous position. At least Ireland has EMU to bail it out if everything goes tits up. The same I dont think can be said about the much larger UK which may be just to big an economy to bail out

  • Driftwood

    Quis custodiet ipsos custodes?

  • Frustrated Democrat

    Mack

    My problem is not with the UK’s ability to borrow. It is who is going to pay it back is my problem.

    For Ireland, the infrastructure is collapsing and the reasons for the original growth no longer exist. Unless there is a substantial devalution in wages and costs in the RoI FDI is over as well since the currency cannot be devalued.

    Unemployment is rocketing (except in the public sector), tax income has declined by almost a quarter and the guaranteed banks are probably at best technically insolvent so where is the good news?

  • Lets not be “Paddy bashing” here. Both countries have got terrible problems. From a Northern Ireland perspective, serious economic problems for either economy is a terrible thing.

    However, I agree with Frustrated Democrat on this one. Being in the Euro is ruining Ireland’s competitiveness.

  • Paddy McEvoy

    Yesterday I started reading that ST article but stopped where Ireland was described as a “beer-soaked backwater”…

  • Mack

    On competitiveness, it should be pointed out that Irish wages, although the second highest in terms of the nominal amounts paid to employees in the Eurozone, when measured in costs to employers are in and around the European average. This is because of lower employer taxes. Most parties are in agreement that employers prsi should be scrapped for new employees for a period, which would reduce costs further.

    Sterling’s collapse is a big concern for retail, however the retail sector in both states sells large amounts of imported goods. Prices in the south have been falling at a fast rate – CPI has been negative since September and January and February’s figures came out an anualised rate of between 10-20%. Many correspondents (e.g. Liam Halligan in yesterdays Telegraph) are now warning of high inflation in the UK, which should help balance the differential with Ireland.

    The UK is important as a trading partner, although we export more to the Eurozone and the US. In terms of keeping (and attracting) the multi-national jobs that drive the economy (80% of GDP) the dollar exchange rate is more important. It’s important the dollar is strong for cost centres, and it’s actually better that the dollar is weak for profitable trading entities. So even there it’s not clear what the total net effect of a dollar fall would be, particularly if the world economy recovers.

    That said both Ireland and the UK (and the rest of Europe / US) face intense competition from the East (Asia & Europe). Devaluation is probably the worst way out, as in effect all we are doing is reducing our ability to live well in order to compete. If we have to, then fine, but I’d rather we tried to innovate & work harder first.

  • It was Sammy Mc Nally what done

    Mack,

    The rule for the P word is similar to that for the N word – you have to be Irish ( Island of Irish) – I hope you will be policing this rule.

    Some Unionists only realise they are covered by this term when they travel abroad to the mainland.

  • Mack

    Also it’s important to note wages in Ireland are falling now. New hires in any company will be hired at a lower rate than at any time in the last few years and because the market has moved downwards any pay rises (in the private sector, in future) will be much lower. Companies have the opportunity now, because of Ireland’s flexible labour laws to let people go now and hire new workers in a couple of years when the economy rebounds, for less. Many companies are negogiating salaries for existing employees, in the private sector, downwards. I’ve heard stories of falls of up to 30% for existing employees.

    So in effect the market is boosting Irish competitiveness. Unfortunately, it’s incredibly painful for those who lose their jobs..

  • Frustrated Democrat

    Mack

    I think what is happening in the RoI is what we need to happen in the UK. I would like to see borrowing stopped and the following to happen instead.

    1. Cut the public sector in the middle and higher grades – unemployment is cheaper than wages.

    2. Dramatically cut all public spending on items that are ‘luxury’ in the current situation for say 5 years – arts, military goods like nuclear warheads and ships etc. etc.

    3. Close the quangos as far as possible.

    4. Concentrate spending on infrastructure improvements that provide jobs and help the economy. eg houses, roads, hospitals.

    5. Spend money on promoting companies that export to make the most of the devalued £.

    6. Accept that our standard of living will decline e.g. our health service would not be able provide non essential services and prolonging lives when they shouldn’t, we couldn’t afford 2 or 3 holidays a year, or second homes, or eating out several times a week.

    Then we might just see some progress, will it happen NO! Politicians of all hues will never tell the electorate what has to happen they prefer to pass the problem on to another generation.

  • Oiliféar

    Out of interest did the article run in the Irish edition?

    All English newspapers are essentially tabloids. It’s irreverent what format the paper is sold in. English broadsheets are merely over-sized, wordier version of English tabloids.

    With that off my chest, the fool is the man that will ignore the fool – particularly his closest and dearest-known fool. This article is full of blatant boo-boos (like “the euro promising currency stability [in the late 1980s]”), clichés, slurs and hyperbole, not to mention down-right devious and mischievous misrepresentations of fact, like linking Limerick’s feuds to the recession (“Recently a man accused of not repaying debts to a local family saw his children doused in petrol and set on fire.”), but we would be fools to ignore it.

    Let the English not see the plank in their own eye, but let us learn from the more than just a speck of saw dust in our own. Arlidge/The Sunday Times might have their facts wrong in parts (and have it in for the Euro) but they have the measure of it. We were arrogant, and foolish, and short-sighted, and we have a tough slog ahead.

    New Ireland is experiencing its first trial. The best response to the nay-sayers is to prove them wrong.

  • Driftwood

    Mack
    http://www.irishtimes.com/newspaper/breaking/2009/0329/breaking24.html?via=mr

    At least Cowen is facing up to the facts. Brown (and to a lesser extent the regional assemblies, including Dodds) could be in denial.

    April 7th could be painful for the Republic. April 22nd may just be Westminster pissing in the wind. I liked George Osbornes line about Mervyn King cutting up Browns credit card.
    Alastair Darling might decide to snip Stormonts.

  • 6countyprod

    Interesting article in The Telly that starts: ‘Northern Ireland businesses stand a better chance of beating the recession than those in other parts of Ireland, according to the director of the Centre for Cross Border Studies. …’

    It’s swings and roundabouts as far as NI and IE is concerned: over the years we take turns at benefiting from the other’s misfortune.

  • TonyB

    I was reading this article on Sunday, and later that evening I watched ‘W’, Oliver Stone’s excoriating biopic of George W Bush. What struck me in reading the article was that the state does not have a person under common or international law – it cannot, effectively, be libelled or slandered in an offensive (legally speaking) way, to Charlie MacCreevy’s great chagrin. Basically, you can’t libel a state.

    Watching ‘W’ that evening I mentioned to my wife that Haliburton was never mentioned, notwithstanding the devastating portrayal by Richard Dreyfuss of Dick Cheney as a fundamentally evil, greedy capitalist.

    Here’s the link – if Stone’s movie had mentioned Haliburton, they would have been sued from here to Fallujah and back again. Similarly, if Ireland inc. was a company, the Sunday Times would soon be owned by its shareholders / taxpayers.

    All journalists have an obligation to be factual, and the good ones should avoid sensationalism. The trouble is, the duty of care is weakened where the target can’t sue, be they dead (Liam Lawlor), foreign (Saddam Hussein), defenseless (homeless people, foreign workers) or other countries.

    A disconnect has opened between the power of the media and the immeasurable consequences of its wielding. And in the absence of a victim with genuine personal impact locus standi, coupled with a court of appropriate jurisdiction, there is little can be done to make up for it.

  • Mick its convenient to mock the Irish – it helps ridicule the Scotish Govt. The Scottish Unionists (led by Gordon Brown) are obsessed by disproving the idea of an arc of prosperity so routinely bundle Ireland, Iceland and Norway together as hopeless cases…meanwhile Brown and Darling quite happy to see another Scottish financial institution go to the wall:

    http://www.sundayherald.com/news/heraldnews/display.var.2498519.0.0.php

  • Mack

    GuSA –

    Mick didn’t write this entry, I did – he hasn’t commented on this so don’t neccessarily take my views as his (Mack as opposed to Mick).

    I’ve certainly seen a lot of pro-Union comment about how bigger economies are fairing better and the bailout of two British banks being a ‘bail out for Scotland’. All of which ignores that the UK is a medium sized economy and not a large one, certainly when compared with the Eurozone, and her own banking liabilities are huge relative to the size of her economy (and the importance of that sector).

    The other angle in some of these articles (apart from potential commercial sabotage, e.g. questioning specific business relationships in the UK) is British opposition to the Euro. Ed Curran in yesterdays Belfast Telegraph, blamed Ireland’s woes on it ditching the peg to Sterling and argued the most visible aspect of the border was down to Ireland joining the Euro! Completely ignoring that there were two currencies on the island prior to 2001, and it is the British refusal to join that keeps it that way.

    Ed’s article here –

    http://www.belfasttelegraph.co.uk/opinion/columnists/ed-curran/why-even-grand-slam-unity-cannot-hide-irelandrsquos-divide-14248703.html

    Incidentally, as pointed out above, Ed is wrong. The Irish government is not heavily in debt (yet).

  • Thanks Mack. Indeed, we know see that the UK Govt twice sabotaged efforts of the Scottish Govt to intervene with Dunfermline Building Society, confirming reports that this is ‘designed strategic failure’.

    Reading the Scotsman here: http://thescotsman.scotsman.com/scotland/SNP-seizes-control-of-Dundee.5123611.jp you can see some of the reasons they are extremely worried.

    You may also like to appreciate the headline writers language ‘seized’ in other scenarios = ‘elected’.