Ireland: Europe’s poster child for austerity or fall guy?

“The plan is working” declares the Taoiseach, in an article above his name in the Irish Times.

While I acknowledge that we still have a long way to go, it is clear Ireland is headed in the right direction and there is light at the end of this tunnel ..

Other banks have been recapitalised and restructured, with new boards and management teams. The bank guarantee has been ended, some stakes in the banks have been sold, deposits are flowing back and emergency central bank funding is no longer needed.

At the core of the Government’s strategy is the creation of jobs for our people.

But the Financial Times while not dismissing the case  for cautious optimism, isn’t quite so sure. It looks more closely at that bank refinancing strategy and those job creation figures.  A magisterial “longer than usual”  blog in the FT by James Mackintosh reviews the state of Ireland’s bail out. I summarise from the text which should be read in full.  (£)

For Europe, Ireland is the poster child for austerity and must, just must, be recovering.

So, have the markets become too optimistic? Below is a rather longer than usual read on Ireland and the wider eurozone issues.

So long as the Irish people show a willingness to put up with the vicissitudes of austerity, bondholders can be pretty confident of getting their money back..

In another sense, though, the bond yield presents far too optimistic a picture of Ireland. Just because its yield is low does not mean its economy is really turning the corner – or as some wags on Twitter put it, Ireland might go round the corner and straight over another cliff…

Even the total of 8,700 over the two quarters remains within the margin of error of of the employment survey of 9,000. In other words, the statisticians are far from sure even that job numbers rose…

IFAC, Ireland’s equivalent of Britain’s Office of Budget Responsibility, thinks forecasts for the effect of the next round of budget reductions are too optimistic.

“There’s a general recognition that the good years were too good,” says Ian Talbot, head of Chambers Ireland, the employers’ group. “The general Irish way is just to accept our lot.”

That lot is still set to get a lot worse, though

The first is the continued risk to the banking system and the economy from the housing market..

The central bank is banging heads together in the financial sector to try to push through loan modifications to give borrowers relief and wipe out debts which will never be paid back.

It is impossible to say how much – if any – relief markets expect Ireland to be given via bank recapitalisations….

As the talks roll on, the question really comes down to a simple political calculation: should Ireland be rewarded for its efforts with more (mostly) German money, or is a successful restructuring of the economy its own reward?

Finally, for those wowed by Ireland’s recovery, three factoids:

• Ireland has the highest construction sector wages in the world,  according to a European official
• Even as public sector wages have fallen about 15 per cent, Ireland  has the second-highest minimum wage in the eurozone (after Luxembourg), according to the European Commission
• 19,541 owner-occupiers have not paid their mortgage for more than  two years. Yet in the third quarter of last year, banks repossessed only  47 homes through the courts. For comparison, UK repossessions fell      to 10,141 in the last quarter of 2012.

 

Brian Walker

Former BBC journalist and manager in Belfast, Manchester and London, Editor Spolight; Political Editor BBC NI; Current Affairs Commissioning editor BBC Radio 4; Editor Political and Parliamentary Programmes, BBC Westminster; former London Editor Belfast Telegraph. Hon Senior Research Fellow, The Constitution Unit, Univ Coll. London