Irish recovery: this little PIIGY went to the market

With all the noise going on in the press over the last week surrounding the Greek bailout programme and a possible Grexit perhaps it would be appropriate to take a step back and consider from a macro-perspective the economic fortunes of the PIIGS, focusing in particular on the situation in Ireland whose market position stands in stark contrast in particular to its fellow bailees, Greece and Portugal. Certainly whilst all the peripheral countries of the euro bloc have experienced very real economic problems in the last two years, the current economic situations of the PIIGS are wildly divergent:

Greece looks increasingly likely to receive its second bailout package worth 130 billion euro which should keep it going a while longer and certainly avert disaster on the 20th March when major debt repayments are due. However the terms of the bailout package are such that the country and its people find themselves locked in an austerity straightjacket, governed by outside forces and usurped of any democratic legitimacy. Its borrowing costs continue to spiral, output is shrinking and the mood is one of deep civil unrest and with no mechanism by which to devalue their currency and no locomotive platform by which to drive any sort of export based growth, the prospects of Greece ever setting down a road toward repaying and easing its debt are non-existent. As such a Grexit seems inevitable, something that is now widely reported.

Portugal who received a bailout package in May 2011 and whose 10-year bond yields are at an unsustainable 12%, welcomed earlier in the week a gaggle of technocrats from the EU-ECB-IMF tripartite for a fresh round of monitoring. This followed on from news which reported that German Finance Minister Wolfgang Schäuble was overheard at a meeting of finance ministers suggesting to his Portuguese counterpart that a second bailout programme could be necessary. Certainly with Moody’s pushing Portugal’s credit rating down to Ba3 (junk status) the nation’s debt worries are steadily on the up and as a direct result of this talk is beginning to circulate of a possible
Portuguese exit from the euro zone.

Italy, the euro zone’s third biggest economy, also felt the pain of a Moody’s downgrade last week when it took the nation’s rating from A1 to A3 and continued its negative outlook. Much like Greece Italy has been robbed of its very democratic legitimacy when the EU implemented of a technocratic government headed by Mario Monti. Italy’s move into recession at the end of 2011 has been compounded by a negative forecast that projects that the economy will shrink by 1.5% in 2012.

Spain who in 2011 averted a bailout which would have surely collapsed the euro zone has been one of the stronger peripheral states in 2012 and is currently enjoying a strong borrowing position on the global markets with 10-year bond yields now at 5.2%. However earlier in the week Spain saw the wrath of Moody’s, who downgraded 12 Spanish banks as well as the sovereign credit rating down two notches to A3 and on negative outlook. This was accompanied with accusations from the European Commission that it has been exaggerating its deficit reduction figures.

Ireland in contrast is a country that seems to be taking large steps in a strong rally against its economic doldrums of old. Whilst Ireland still maintains relatively high borrowing costs, an unemployment rate of 14% and a demographic crisis with it young emigrating 1,000 by the week, there is a confidence among the political class and sections of the population that Greece and the other PIIGS just don’t have.

Notably, the Taoiseach Enda Kenny is palpably committed to his election manifesto to ‘get Ireland working’ and with his leadership, vision, expansionist policies and his dedication to open up Ireland’s borders to foreign investment, he really is living up to his pre-election commitments. As such, there are 4 main points by which Ireland is taking strength and which should ensure a sustainable exit from the crisis:

Firstly the government is on top of its budget thanks to strong discipline in implementing and sticking to its austerity and fiscal consolidation programme. Secondly, the government is well on top of bringing about structural reforms and deleveraging the Irish banking industry. Thirdly, Ireland benefits from a young and highly skilled workforce, suited and booted and very much ready for work. Fourthly, with its low corporate tax rate Ireland is very much pro-business and making the most of its business friendly jurisdiction by flexing its muscles on the global market place.

The first two points are key to garnering confidence and credibility amongst global actors and ensuring the platform for future growth. The last two points are key resources to Ireland, the envy of countries the world over that will ultimately determine Ireland’s post crisis recovery as they are the mechanisms by which Ireland can propel itself to growth and prosperity.

On that note, Enda Kenny has just rounded off his latest 3 day trip to the U.S. where he courted the attention of American big business. He outlined a number of goals, notably the aim to increase the number of jobs coming from U.S. financed firms in Ireland from 100,000 to 200,000 by 2020. Kenny further sought to encourage Senatorial support for a bill to pass through Congress that would see the implementation of a programme that would give 10,500 Visas annually to skilled Irish workers.

On the weekend that Enda Kenny finished his U.S. talks, Tánaiste, Eamon Gilmore welcomed China’s second in command and leader-in-waiting Xi Jinping for talks aimed to deepen their traditional friendship and ultimately to expand the strong business ties between China and Ireland.

All the talk in the media these last few weeks has centred on the runt of the litter, Greece; however Ireland has shown that the PIIGS can make a recovery and how to do so. Ireland is getting its public finances and infrastructure in order and with a strong workforce in hand it has gone to the market. Ultimately Ireland has brought about a monumental change in its economic landscape since the November 2010 bailout and with the beginnings of a strong recovery in sight and the lessons learnt through the disaster of the Irish property boom, the birth of a true Celtic Tiger could be just around the corner.

  • Better not tell jim allister about this as he had his heart[if that’s the right word] set on the ‘basketcase to our south going down the pan. He’ll be terribly sad to hear this.

  • Comrade Stalin

    I’m sure there will be a few people with things to say about that rather breathless and uncritical promotion of Irish government policy culled, it appears, from government press releases.

    That aside, it’s worth exploring another interesting matter :

    with no mechanism by which to devalue their currency [..]the prospects of Greece ever setting down a road toward repaying and easing its debt are non-existent.

    Why does everyone keep holding out devaluation as if it is some sort of magic wand solution ? Devaluation is default by the back door. You can’t just turn around to investors and tell them that they’re being repaid in beans instead of gold coins and expect no consequences. The history of devaluations mostly seem to show that they’re about as subtle and controlled as a hand grenade chucked into an ordnance bunker. They have a particularly bad reputation in the UK, which is probably why the UK isn’t using this mechanism to solve its own rather serious present predicament.

    Greece *do* have the option to quit the Euro, float their own currency, and devalue and print money all they want. Their judgement appears to be that they are better off accepting the European terms that are on offer. Placing this in context, it is not as if Greece do not have some bargaining power, if there is any truth to the notion that their exit from the Euro will damage the big Eurozone states as much as themselves.

  • BluesJazz

    Whilst Ireland still maintains relatively high borrowing costs, an unemployment rate of 14% and a demographic crisis with it young emigrating 1,000 by the week, there is a confidence among the political class and sections of the population that Greece and the other PIIGS just don’t have.

    year 1 Economics class
    Can you define any shite in this statement?

  • Pete Baker

    *junk status*

    As has the original post. Sorry Brian. But it’s true.

    The PIIGS are in widely different circumstances. Which is why no-one has been seriously trying to compare them.

    But the current weak-point of the euro is Greece. And with it, potentially, the future of the “European Project”.

    Even for true believers.

    Which is why the current focus is there.

    What’s left, regardless of what happens with Greece, is the “the political trilemma”.

  • HeinzGuderian

    All the talk in the media these last few weeks has centred on the runt of the litter, Greece; however Ireland has shown that the PIIGS can make a recovery and how to do so. Ireland is getting its public finances and infrastructure in order and with a strong workforce in hand it has gone to the market. Ultimately Ireland has brought about a monumental change in its economic landscape since the November 2010 bailout and with the beginnings of a strong recovery in sight and the lessons learnt through the disaster of the Irish property boom, the birth of a true Celtic Tiger could be just around the corner.

    🙂 Gotta be post of the Year award !!! 😉

  • socaire

    Don’t forget that the anti-treaty forces are mobilising at Clonoe tomorrow Sun at 2.00pm

  • Alias

    The China visits are all for the optics. The natives have to be led to think that a Sugardaddy will come to rescue them if they are to be persauded that continuing to bail-out the eurosystem is a workable proposition.

    The reality is that only 2.6% of exports go to China, and only 19.7% of that 2.6% are Irish exports. The rest are from foreign-owned corporations. Of that 19.7%, all of it are dairy and other food products so any growth there will be of benefit to farmers and no one else.

  • cynic2

    Socaire

    The fact that you keep cross posting this on unrelated threads smacks of desperation

  • Alanbrooke

    Ireland’s ability to stabilise its economy and return to growth are a cause for optimism. The country has however had to pay an enormous cost to get here.

    Before there is too much celebration one should look at Iceland, which chose not to bail its banks out. Iceland now can return to the world’s bond markets with Investment grade status, has falling unemployment and accelerating growth.

    In the days when people used to joke the difference between Ireland and Iceland was a letter Iceland was seen as a basket case, now it looks like they’re out of their problems and have better prospects than the PIIGS.

    http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100015053/icelands-viking-victory/

  • …. and certainly avert disaster on the 20th March when major debt repayments are due.

    Major debt repayments to whom and/or what, Brian?

    The same systems which the people allow to invent out of nothing, money to credit and create debt out of nothing and then tax and proclaim to the people that they owe them that money back again, even though in the spending of it is it always returned to system with massive interest having been already added by the generation of that which the people have used the money to create and provide/supply and purchase?

    It is such crippling and increasing to be never ending repayments which destroy the magic which the currency [spending] of money creates. But it is a very simple and effective and perverse way to keep peoples as slaves to a system which fears their freedom because then would they have no power to control them with nothing.

    How sad that Ireland sold out to the system and bends over for a right royal shafting whenever there is Iceland, a novel and progressive viking model for post modern leaderships.

    But then BIFFO Cowen was well nick-named, methinks.

    Well said, Father

  • FuturePhysicist

    Ireland’s ability to stabilise its economy and return to growth are a cause for optimism. The country has however had to pay an enormous cost to get here

    Southern Ireland’s recovery wasn’t simply due to paying the cost but doing the work, I think the culturally conservative North could actually learn a few lessons, if not many more.

    Perhaps the Republic really knows it doesn’t have any choice, yet the current Northern government really thinks it does. Even with a deficit due to homing a larger a financial crisis, and the vices of property development madness, you hear more jobs being created further south than the north. It’s not just corp-tax but a progressive attitude to higher educational policy as well.

    Whisper it quietly but manufacturing investors are scared of touching anything British right now, the British manufacturing investors are moving their companies to the Republic.

  • Comrade Stalin

    Heinz,

    Gotta be post of the Year award !!!

    I’m wondering if Brian works for Fine Gael or something. We’ll probably never find out, as looking through the archives Brian is another one of those contributors who never bothers to drop by to engage in any debate. Which is a shame.

  • I’m wondering if Brian works for Fine Gael or something. We’ll probably never find out, as looking through the archives Brian is another one of those contributors who never bothers to drop by to engage in any debate. Which is a shame.

    That is typical of Westminster government shills, too, Comrade Stalin.

  • Alanbrooke

    Future Physicist

    I’d be interested to see any major example of UK manufacturers moving to the Republic. US investors, head offices yes, but moving full scale manufacturing facilities ? For a start off the Republic is light on the necessary infrastructure to keep manufacturing going such as repair and maintenance engineers or robotic skills; the UK itself is struggling in this area and it is still a major manufacturing nation.

  • Come on, chaps, please try and keep up with developments. One doesn’t want everyone thinking Northern Ireland is a two bit hood, third world back-water with no intelligence service servering intelligence to its inhabitants, does one.

    Theoretically money is a public tool issued by a Nation so that citizens can engage in commerce. But reality shows quite another face: about 95% of the money in circulation today is created by private banks, and you have to pay for it by means of interest. The truth is that money is private, scarce, opaque, controlled by the few. The current global financial crisis is a natural outcome of this situation.” …… http://flowplace.webnode.com/droplets/

    Why the present austerity drives championed by governments officials and ignorant politicians to aid corrupt controlling bankers are creating fertile grounds for smart stealthy revolution and violent mob vengeance which will be specifically personally targeted against government officials and ignorant politicians and corrupt controlling bankers, and any who would not be thinking and be drafted in to protect them, for they are the root source of the major problem which blights societies?

    Don’t mess with the internet ….. for IT shares information that can seriously damage your wealth and health in a flash crash and global instant ……. is something to remember and never forget.

    A little something for Sammy’s Stormont Inbox, methinks.

  • FuturePhysicist

    Alanbrooke … the only Pfizer company in the UK and Ireland is in Ireland … there are many more examples.

  • Alanbrooke

    F P

    Pfizer is part of an american multinational and has been in Ireland for over 40 years. It’s not a UK maufacturing company relocating to RoI. Pfizer had an R&D operation in Kent which has now closed, but it wasn’t manufacturing anything.

    RoI has been successful in attracting US multinationals as a base in Europe, but to date I have seen little evidence of UK companies upping sticks and crossing the Irish Sea. The closest has been some financial institutions headquartering in Dublin, but that’s simply moving a nameplate for tax reasons, it’s not a wholesale transfer of jobs.

  • andnowwhat

    Honestly, some people are so slow. Further to the Chinese visit, the Irish government have been invited over to China.

    Hopefully, this works out well for the south.

  • Comrade Stalin

    It might be instructive for some people to read Chris Patten’s “East and West”.

    The Chinese are famous for encouraging trade missions, signing communiques and memos about opening up trade. In practice, there is seldom any increase in business or investment after the fact.

  • Alias

    Plus, they’re after raw materials, not produced goods with the value already added.

    As Dev discovered, the British will import your cattle but won’t import your processed meat (the processed value is a multiple of the unprocessed value), so your exports merely serve to extract your resources from your economy and thereby fail to utilise those resources to create employment and wealth, leading to an impoverished nation.

    China’s plan involves an increase in domestic consumption for its goods by increasing the wealth of its citizens and turning them into consumers of domestic goods and services, while not relying as heavily on exports of goods to consumers in regions such as the US and EU where consumer spending is in decline due to excessive levels of debt.

    Having already extracted cash reserves of 3 trillion dollars from its exports, China recognises that is unsustainable.

    Ireland’s exports to China at 2.6% are above the EU average of 1.5% but there good reasons why the EU’s exports to China are so abysmally low, and those reasons (higher production costs, overvalued currency, overregulation, etc) will remain in place.

    The only goods that Ireland can offer China are the goods that currency constitute 100% of its domestic exports to China: food. And as China switches to a policy of lifting the wealth of its citizens (not just its corporations), they will also switch to a policy of importing unprocessed food, with the value to be added by the Chinese. Given that the CAP has made farming unprofitable without subvention, such a policy offers no benefit to Ireland or the EU but will benefit farmers courtesy of the subventions paid to them indirectly by consumers in the form of higher food prices and directly from the EU.

  • Greenflag

    @Alan Brooke ,

    ‘but to date I have seen little evidence of UK companies upping sticks and crossing the Irish Sea. ‘

    There are probably several reasons one of which is operating ‘performance’ . They just don’t do as well in Ireland as others . I recall a number of years back reading a comparative list of overseas firms (non financial services) and the UK was at the bottom of the list in terms of business performance . Americans , Germans , Japanese and even French did better . Why that should be so is a tale that might interest the folks in cross cultural ‘economics’ ?

    Perhaps the track record then has proved a disincentive for some now?

    Today is the 40th anniversary of former US President Nixon’s visit to Communist China . It was the first visit of ANY American President in office to that country , I think we can all agree that it was a world changing visit although the American dream of opening up China as an export market for US products seems to have backfired . On the bright side if the US had not opened up China and had the latter remained communist who would have lent the USA the trillions of dollars in US Treasury Bills this past decade or more to enable the USA government to pay it’s bills ?

  • andnowwhat

    1,000 new jobs are announced today for Dundalk by Paypal.

    http://www.rte.ie/news/2012/0221/paypal.html

  • Greenflag

    @ Comrade Stalin,

    ‘The Chinese are famous for encouraging trade missions, signing communiques and memos about opening up trade. In practice, there is seldom any increase in business or investment after the fact.’

    With respect to Mr Patten he may have been jaundiced in his views given his folding up of Hong Kong role . The Chinese like everybody else will only increase their business and trade with other countries if it pays them to do it -i.e if it’s profitable or there are strategic advantages . The UK , USA or Spanish/French/Russian empires or South Korea or Japan were /are no different .

  • FuturePhysicist

    Ireland’s exports to China at 2.6% are above the EU average of 1.5% but there good reasons why the EU’s exports to China are so abysmally low, and those reasons (higher production costs, overvalued currency, overregulation, etc) will remain in place.

    So you’re saying if the EU employed serfs paid with hyperinflated money like the Chinese, somehow formed an openly provokative open market with Russia, the Gulf, India and Japan against it also paid with hyperinflated money in return for cheaper raw materials, and removed all the manufacturing regulations surrounding this that and the other thing to make inferior products to be marketed better at to suit the price of the average Chinese serf consumer … the EU would emerge out of the abyss?

    And what you say about Irish food easily applies to British vehicles and vehicle parts. Without food, Chinese production slows down … due to a market force I like to call Death.

  • Alias

    The EU does look doomed when you put it that way, doesn’t it? It simply can’t compete with Asian economies, and so it can’t generate the wealth to maintain its higher wage costs. It looks like poverty beckons…

    Still, keep voting for that future in those referendums.

  • Greenflag

    @ Alias ,

    ‘It simply can’t compete with Asian economies, and so it can’t generate the wealth to maintain its higher wage costs. It looks like poverty beckons…’

    Which economies can compete with countries whose workers make a dollar a day ? The point you fail to consider is the political one . Do you seriously believe that the countries of the EU or more specifically the people of the EU and the USA will stand idly by and allow mass poverty to become the norms for their societies .

    We know what happened to the Weimar Republic and we know what happened during the French and Russian revolutions and what happened in the USA after the Great Depression .

    Kid yourself not-The people have a breaking point and it does’nt matter if they are Greek or Irish or British or American or French or German or North African and when the balloon does go up I would’nt want to be a highly visible ‘bankster’ and all the security that ‘wealth’ can purchase won’t protect the 1% from the wrath of the risen people . The western politicians -all of them are running out of time .

  • Alias

    Really? Any idea of when these revolutions will happen and how they’ll produce competitive economies? The EU is becoming an economic irrelevance with a share of global GDP that has fallen by half in less than 20 years and is continuing its downward trajectory.

    It recognises that its higher labour costs have made it uncompetitive and has countered that by introducing a pool of cheap labour by adding states from Eastern Europe to drive down wages in the Union. The problem with that strategy is that the citizens of other member states object to wages falling while the cost of living increases and so labour-intensive production simply transfers from EU states with higher wage costs to EU states with lower wage costs, leaving the citizens unemployed (ask former Dell workers in Limerick). The world moves on without them, and I don’t see many on the streets protesting about it – for all the good it would do them.

    EU regulation costs businesses an extra 600 billion euros each and every year. That’s probably why EU exports to China are a mere 1.5% of its total exports. It has made the economies of its member states utterly uncompetitive in a keenly competitive marketplace.

  • Greenflag

    @Alias,

    ‘Any idea of when these revolutions will happen ‘

    Nobody predicted the French Revolution or the Russian nor did anybody in Northern Ireland ‘predict’ the ‘Troubles’ . Likewise nobody predicted the collapse of the Soviet union or the implosion of the former Yugoslavia and if anybody predicted the ‘bursting ‘ of the American property bubble and the ensuing sub prime mortgage fiasco it certainly was’nt Alan Greenspan .

    There is a tipping point beyond which the status quo not only loses it’s status but also it’s political equilibrium . History is full of examples . The Weimar Republic was discredited in the eyes of the people . The French monarchy ditto and the Russian Tsars . The rule of the worldwide ‘financial services sector ‘ is now discredited and what we see happening in the USA and EU and the UK and Greece is just adding more fuel to the pyre . See today’s BBC for the latest RBS fiasco . Despite the bailout they’ve managed to double their losses to 2 billion sterling and it’s the Greek’s fault -lol .

    The EU is not an economic irrelevance . The Chinese now import more from Germany than from the USA .

    ‘and how they’ll produce competitive economies? ‘

    I did’nt state they would . When ‘everybody’ is competitive nobody is competitive . Any new ‘political ‘ order will cross that bridge when it comes to it . When the house is burning down around you -you don’t sit down and design your new abode -you get out first .The designing can wait.

    Economics and politics are inextricably mixed but there are times in history when it’s seen that the ‘economics’ or ‘status quo’ no longer works or is seen as corrupt beyond redemption -that politics takes over in a format that can veer from the extreme right to the extreme left usually accompanied by civil war, chaos etc until a new order is eventually imposed .