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.