Financial News

  • 13 December 2013, 10:55

Ireland Struggles On Brink Of Bailout

There's a recurrent question that's hard to bat off when you visit Ireland and speak to the families who have had to bear the burden of austerity over the past five years: if this is what success looks like, what on earth would constitute failure?

Ireland is on the brink of becoming the first of the troubled eurozone nations to bring its formal bailout to an end this weekend.

For those who have backed the so-called Troika plan (the three Troika members are the European Commission, International Monetary Fund and European Central Bank) it's an opportunity for quiet satisfaction - if not triumph.

The currency is still intact, despite real fears, culminating last summer, that it would face implosion.

And the economic numbers are starting, finally, to turn in Ireland's favour.

But it's hard to revel in this when you take even a moment to examine the plight of the country.

Whether you view it in statistical or human terms, Ireland has faced a genuine depression over the past six years.

Between 2008 and the end of 2010, the country's economic output - in other words the amount of income its entire economy generated - shrank by a tenth.

House prices halved since 2007 - a bigger fall than has been seen in any developed economy in recent memory.

If the property market was the engine for the economy before the crisis, it is now essentially non-existent.

Consider this: between 2004 and 2006, about 77,000 homes were being built every year. Last year the comparable figure was 4,000.

But the human toll is greater still. The country is facing an exodus of young people, with more than 200,000 of its 4.8 million population leaving since 2008.

We talked to university students who say the end of the bailout will do little to stem the flow.

Those who have stayed have suffered wage cuts of almost unprecedented proportions, with public sector workers seeing their salaries slashed by a fifth.

There are commonplace tales of middle-class households having to resort to soup kitchens to keep their families fed.

Conor McDonald, a public service worker, became so short of cash that for a period he struggled to afford paying for his children to visit the doctor when they were ill.

They are stories common to many of the struggling eurozone nations - Greece, Portugal and Spain among them, as are the statistics showing unemployment (particularly youth unemployment) at worrying highs.

But Ireland's problems were not quite the same as those other nations.

The Mediterranean problem nations suffered from a serious lack of competitiveness, due in large part to their sclerotic regulatory systems and unreconstructed state sectors.

Ireland, by contrast, had a relatively lean economy.

In 2006 its government's net debt was a mere 11.5% of national income, compared with 107% of GDP in Greece and 38% in the UK.

Public spending was lower than the EU average; the country had already carried out most of the efficiency reforms the Troika urged on the rest of the bailout nations some years previously.

But, like Spain, Ireland did have a property and banking crisis of enormous proportions.

Banks lent out enormous sums to property developers and homeowners which, when prices suddenly collapsed, left them nursing major balance sheet problems.

The government took the decision to stand behind its banks, which is a large part of the explanation for why it now has net debts approaching 107% of GDP (which in turn encourages many to lump it in with Greece and Portugal).

The different nature of the crisis explains why Ireland has managed to recover quicker than its Mediterranean counterparts.

The economy has been growing these past couple of years, partly off the back of an enormous pick-up in exports.

The country's hard-fought battle to maintain its low corporation tax rate meant most international companies remained there.

More recently, there has been a pick-up in domestic economic activity, and even house prices have started to turn around.

There is even the expectation now that NAMA, the bad bank into which the state put its most toxic assets, may actually turn in a profit.

However, none of this can heal the scar left by the ordeal.

It is tempting, once the economic figures are back in positive territory, to presume that the news is suddenly all good.

As Ireland shows us, the numbers, shocking as they are, hardly begin to tell the story.

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