The Society of St Vincent de Paul is Ireland’s largest charitable organisation. The demands on the SVP are greater than ever. Compared to last year, calls for food and financial help are up by 35 per cent and still rising. More than 450,000 are jobless. Irish banks rescued by public money own 300,000 empty apartments. Yet, many people are being forced to live in tents or on the streets.
Although the Irish crisis surfaced after the global recession, it is primarily the result of irresponsible financial management. For 12 years, the world was impressed with the Irish economic miracle.
Access to the EU Single Market, a low corporate tax rate (12.5 per cent), the English language and the empathy of the Irish Diaspora in America, helped attract foreign direct investment to Ireland. Now, the Celtic Tiger is badly wounded in body and spirit. Easy-money generated by reckless banking and fiscal deficits caused a bubble that has now burst. Ireland Inc. is no longer a role model economy to be emulated by emerging economies like ours.
During the US-triggered financial crisis, the Irish government tried to fend off speculators by hurriedly promising to back all bank debts and to guarantee all deposits up to €100,000. Ireland’s Budget deficit soared and, in 2009, was, as a percentage of GDP, the highest in the eurozone. A silent run on Irish banks forced them to borrow €130 billion from the European Central Bank. The Irish government did its best to restore fiscal stability. It introduced impressively harsh austerity measures while insisting the country had a banking, and not a fiscal, crisis.
In reality, given the government’s unqualified guarantees to the banking sector, the two had become inseparable.
The government went into denial, consistently asserting that no bailout was necessary as it had the necessary funds up to mid-2011.
It believed a four-year fiscal plan cutting expenditure by €15 billion and which was to be approved by the Irish Parliament in early December would do the trick. Investors were not convinced and interest on 10-year Irish bonds soared to nine per cent.
The EU became panicky, dreading a repeat of the protracted Greek experience. The EU could not afford Ireland going bust in a muddled manner.
There was fear of “contagion”, of investor unrest spreading to other vulnerable eurozone economies such as Portugal and Spain.
The European Central Bank urged Ireland to ask for aid. It was concerned its exposure would grow as depositors continued to withdraw money from Irish banks (surprisingly these banks had earlier this year passed the ECB’s stress tests).
A chain of statements made by EU leaders made financial markets jittery.
Austrian Finance Minister Josef Proell said his country will not pay its share of Greece’s €60 billion bailout as it was not convinced Athens was doing its best to cut expenditure. Then, EU Council President Herman Van Rompuy told an audience in Brussels that “we’re in a survival crisis”.
In the meantime, German Chancellor Angela Merkel remained adamant that if need be the recently ratified Lisbon Treaty be re-opened to allow the EU to create a permanent bailout system. She kept insisting that post-2013 bondholders will have to accept “haircuts” (part losses) in the value of their holdings when a financial institution effectively goes bust. The interest on the bonds of weaker eurozone countries, including Ireland’s, shot upwards.
Eventually, Ireland had to succumb to EU pressure and to accept an €85 billion bailout. It is not a good deal for Ireland. Interest, at an annual 5.8 per cent, is higher than the initial 5.2 per cent, which Greece was charged. (Greece has now accepted the higher rate in exchange for an extended repayment period). Some 20 per cent of Ireland’s projected tax revenue in the next few years will go to pay interest. Moreover, Ireland has been obliged to make good for 20 per cent of the bailout funds from its reserves and pension funds. The IMF will be financing €22.5 billion with the remaining €45 billion being financed by two European stability funds purposely set up earlier this year.
Ireland is worried its image and reputation have been hopelessly tarnished.
The Irish people, whose per capita income had overtaken Germany’s, will inevitably suf-fer a fall in their standard of living.
A total of 100,000 Irish are expected to emigrate in 2011. The real challenge for the country is how to rebuild competitiveness. Ireland has resisted having to raise its corporate tax rate.
This, together with falling salaries and rents, may persuade foreign capital to flow again into Ireland.
Much will depend on the fate of the euro. Ireland needs a cheap currency and various analysts have been advocating Ireland drops the euro.
The Irish people feel betrayed. Their overall sentiment as the country moves closer to the 100th anniversary (in 2016) of the Easter Rising against British rule, is one of anger, shame and disgust.
Recently, on the inauguration day of the €1.2 billion terminal at Dublin Airport, Ryanair’s CEO, Michael O’ Leary, sent a coffin and wreath inscribed “Irish Tourism RIP”. He described the new terminal as a modern Taj Mahal.
The Celtic Tiger has lost its way. Now, the Irish people have to pay the price for the financial and economic mismanagement of the Fianna Fail party. Unfortunately, the weak always end up paying for the abuses and failures of the mighty.
fms18@onvol.net