Irish PM warns of pain ahead for country

Ireland's prime minister, Enda Kenny, makes the first televised address to the nation in a quarter of a century, saying many of its citizens' financial situations would get worse before they got better.

10:16AM GMT 05 Dec 2011

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Speaking ahead of the Irish government's first budget, Mr Kenny warned it would be the harshest of its five-year term and admitted that no one inIreland would be left unaffected by the austerity drive.

"I wish I could tell you that the budget won't impact on every citizen in need. But I can't," he said.

"I know this is an exceptional event but we live in exceptional times and we face an exceptional challenge."

The speech was made under 2009 legislation that allows the prime minister to address the nation on television in the event of a major emergency. The last time this happened was in 1986.

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• Ireland's Enda Kenny warns of need for more austerity

Mr Kenny was swept to power with a record majority in February on a wave of voter anger over the country's economic collapse and the harsh rescue terms laid down by its European partners.

His predecessor Brian Cowen was widely criticised for not addressing the nation on the financial crisis that led the state to take on tens of billions of euros of debt from private banks and eventually to a EU-IMF bail-out.

Since its election in February, the government has broadly maintained its support, with an opinion poll on Sunday giving Mr Kenny's centre-right Fine Gael party 32 per cent, down from 36 per cent in the election.

http://www.telegraph.co.uk/finance/financialcrisis/8935137/Irish-PM-warns-of-pain-ahead-for-country.html

Debt Levels Alone Don’t Tell the Whole Story

By FLOYD NORRIS

Published: September 23, 2011

AS the world’s central bankers and finance ministers gather in Washington this weekend for the annual meetings of the International Monetary Fund and World Bank, government debt is at the top of the agenda. Some governments can no longer borrow money and others can do so only at relatively high interest rates. Reducing budget deficits has become a prime goal for nearly all countries.

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Graphic

Why Some European Government Debt Seemed Deceptively Small

But looking only at government debt totals can provide a misleading picture of a country’s fiscal situation, as can be seen from the accompanying tables showing both government and private sector debt as a percentage of gross domestic product for eight members of the euro zone. The eight include the largest countries and those that have run into severe problems.

In 2007, before the credit crisis hit, an analysis of government debt would have shown that Ireland was by far the most fiscally conservative of the countries. Its net government debt — a figure that deducts government financial assets like gold and foreign exchange reserves from the money owed by the government — stood at just 11 percent of G.D.P.

By contrast, Germany appeared to be in the middle of the pack and Italy was among the most indebted of the group.

Yet Ireland was slated to become one of the first casualties of the credit crisis, and is now among the most heavily indebted. Germany is doing just fine. Italian debt has risen only slowly. The I.M.F. forecasts that Ireland’s debt-to-G.D.P. ratio will be greater than that of Italy by 2013.

It turned out that what mattered most in Ireland was private sector debt. As the charts show, debts of households and nonfinancial corporations then amounted to 241 percent of G.D.P., the highest of any country in the group.

“In Ireland, as in Spain, the government paid down debt while private sector grew,” said Rebecca Wilder, an economist and money manager whose blog at the Roubini Global Economics Web site highlighted the figures this week. She was referring to trends in the early 2000s, before the crisis hit.

Much of the Irish debt had been run up in connection with a real estate boom that turned to bust, destroying the balance sheets of banks. The government rescued the banks, and wound up broke. Spain has done better, but it, too, has been badly hurt by the results of a real estate bust.

The story was completely different in the Netherlands, which in 2007 ranked just behind Ireland in apparent fiscal responsibility. It also had high private sector debt, but most of those debts have not gone bad.

The differences highlight the fact that debt numbers alone tell little. For a country, the ability of the economy to generate growth and profit, and thus tax revenue, is more important. For the private sector, it matters greatly what the debt was used to finance. If it created valuable assets that will bring in future income, it may be good. Even if the borrowed money went to support consumption, it may still be fine if the borrowers have ample income to repay the debt.

That is one reason many euro zone countries are struggling even with harsh programs to slash government spending. With unemployment high and growth low — or nonexistent — it is not easy to find the money to reduce debts. And debt-to-G.D.P. ratios will rise when economies shrink, even if the government is not borrowing more money.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

http://www.nytimes.com/2011/09/24/business/debt-numbers-alone-tell-little-about-fiscal-stability.html?_r=1&ref=business

Ireland - Economic Growth

Ireland's pain begins

Ireland's pain begins

Once the 'best place to live in the world', Ireland is haunted by the spectre of bread queues as public services are slashed

Mary Fitzgerald guardian.co.uk, Friday 10 April 2009 11.30 BST

For a country that was enjoying roaring growth just a few years ago, the outlook for Ireland is now shockingly bleak. The number of unemployed is expected to reach 450,000 by the end of the year, which, in a country of only 4 million, is staggering. Privately, financial experts say that Taoiseach Brian Cowen's prediction of a 10% drop in living standards is "a dream" – the reality is likely to be closer to 30%. Of those still in jobs, nine out of 10 have taken pay cuts to keep them. It's all beginning to look "quite 1930s", as one friend observed: dole queues have quadrupled and April saw the first bread queues in Dublin for more than 20 years.

Just as in Britain and the US, there is outrage at the bonuses paid to the chairmen of banks bailed out by the government. Unlike anywhere else, though, the government seems to be blaming its own citizens for the crisis, and punishing them for it. Tapping into old Catholic traditions of guilt and penance, it's pushing a message of "collective guilt". Society has overindulged and must now pay the price, or so the logic goes, and so finance minister Brian Lenihan framed his emergency budget earlier this week as "a call to patriotic action".

What it is, in reality, is a cynical cutback on vital public services – at a time when they are more likely to be needed than ever. In an attempt to balance its books, the government aims to shed €6.6bn from the public purse by 2011, including some €725m earmarked for badly needed road projects, €81m from the education budget and €62m from the Department of Health's budget. Even services that, in a recession, will be relied upon more than ever, face cuts.

Peter McVerry, who runs a Dublin-based trust for homeless people, says that the government's kneejerk reaction of "indiscriminate, slash and burn cutbacks" amounts to little more than an outright attack on the poor. The decision to halve jobseeker's allowance for the under-20s was particularly brutal, as McVerry points out, given the rampant inflation of the past decade, a young homeless person "just cannot survive on just €100 a week".

The government is making a big show of practising the austerity that it preaches, culling the number of junior cabinet ministers and announcing pay cuts for those remaining. Yet, despite the protests from some quarters against "taxation with a vengeance", the truth is that Lenihan's budget increases taxes on the rich only marginally. In short, those who did well from the boom are not being made to pay for its consequences.

"The real pain of political self-interest, incompetence, negligence and laziness will be kept clear of those who have left the Irish economy so unprepared for the severe global slowdown that is forecast in 2009," predicts Michael Hennigan, founder and editor of Finfacts.ie.

Worse still, the government has squandered many of the opportunities afforded during the good years to reinvest in the country. Although average incomes have risen, little has been done to pull the generational poor out of poverty. Just minutes from the sleek new Smithfield development in north Dublin, with its organic shops and crisp new apartments, lies the Devaney housing project, where many windows and doors are boarded up and shops are Portakabins with bars on their windows and doors. Some of the apartment blocks have been demolished and local authorities have been promising for years to redevelop the estate, but there is as yet no sign of this, and families still live in appalling conditions. Scenes like these, familiar in all of Ireland's cities, stand at sharp odds with the official brand image of a country judged by The Economist in 2004 to be the "best place to live in the world".

Unlike in previous generations, the Irish cannot blame their problems on anyone else now: this is their own mess – and they will have to fix it. They could start by electing a new government.


http://www.guardian.co.uk/commentisfree/2009/apr/09/globalrecession-banking

Ireland plans drastic cuts to prevent debt crisis

Ireland plans drastic cuts to prevent debt crisis
Ireland is to demand pay cuts for civil servants and public employees to prevent the budget deficit soaring to 12pc of gross domestic product by next year – becoming the first country in the eurozone to resort to 1930s-style wage deflation to claw back competitiveness.

By Ambrose Evans-PritchardLast Updated: 6:13AM GMT 15 Jan 2009
"We will take whatever decisions are necessary," said premier Brian Cowen. The Taoiseach yesterday denied reports that he invoked the spectre of the International Monetary Fund to terrify the trade unions into submission. But the threat – uttered or not – has been picked up nevertheless by labour leaders.
"The IMF's normal prescription in such situations involves mass dismissals and pay cuts, along with cuts in pensions," said Dan Murphy, head of the public service union, who accepts the need for draconian retrenchment.
The budget deficit will soar to 9.6pc of GDP this year as property tax revenues collapse. It is so far above the EU's Maastricht limit of 3pc that Brussels will have to impose sanctions. It is still rising fast.
"On the basis of existing policy, A General Government Deficit in the range of 11pc to 12pc of GDP is in prospect for each of the years to 2013. This is untenable," said the finance ministry in a fresh revision to its (already dire) Stability Programme. It has drafted a swingeing five-year plan, slashing spending by €16bn (£14.4bn) or 8pc of GDP by 2013.
The markets are watching nervously. Yields on Irish 10-year bonds have risen to 180 basis points over German Bunds. Standard & Poor's has issued a "negative outlook" alert on Ireland's AAA rating, noting that the bank bail-out has increased state liabilities by 228pc of GDP. This guarantee may be tested. While Dublin's "Canary Dwarf" has been a success story – leading a finance sector that makes up nearly 10pc of Irish output – it has also become an Achilles Heel.
Chris Pryce from Fitch Ratings said Ireland had shown great courage by facing up to the full implications of the global crisis earlier than others. "We're very impressed by the vigour of the Irish government," he said. Even so, the public debt will jump from 25pc of GDP in 2007 to 62pc by 2010.
It is a grim moment for the Celtic Tiger after achieving so much as a high-tech hub with an educated work-force and one of the most flexible economies in the world – all qualities that should help the country pull through in the end.
Dublin expects the economy to shrink by 4pc this year as the post-bubble hangover goes from bad to worse. Unemployment will hit 12pc by December, up from 4.9pc in early 2008.
Ireland is paying the price for letting wages spiral upwards during the long boom, eating away at competitiveness. The computer group Dell, Ireland's top exporter, has stunned the country by announcing plans to shift its EU manufacturing arm from Limerick to Poland, taking 4pc of Irish GDP with it. Workers in Eastern Europe are closing the technology gap, and they are much cheaper.
Dublin house prices have fallen 28pc from their peak. Professor Morgan Kelly from University College Dublin – the first to predict last year that Irish banks would need a state rescue – fears that prices will drop 80pc in real terms before the glut of unsold property is cleared.
"It has taken us 10 years to get into this situation. It will in all likelihood take us 10 years to get out of it. Construction will fall to zero for the foreseeable future," he told a Dublin conference. There may be net "demolition".
It is hot debate whether euro membership is making matters worse at this stage. The country has not been able to "get ahead of the curve" over the last year by slashing interest rates. Indeed, Frankfurt raised rates in July.
The euro has jumped almost 30pc against sterling in a year. This amounts to an "asymmetric shock" for Ireland, which depends on Britain for 21pc of its exports. John Whelan, head of the Irish Exporters Association, said the strong euro puts100,000 jobs at risk this year.
"Most companies cannot make money selling into the UK at an exchange rate above 0.80 pence and today the euro is worth 0.91 pence. Currency hedges will run out by March, and the small guys are feeling the full whack instantly," he said.
Mr Whelan said there was a feeling of betrayal that Britain did not join the euro alongside Ireland – or shortly after – despite Labour's pledge to do so.
"We thought Britain would join in 2003, but then Tony Blair lost his popularity in Iraq and never tried," he said.
Finance Minister Brian Lenihan has even accused Britain of pursuing a beggar-thy-neighbour strategy.

http://www.telegraph.co.uk/finance/4241720/Ireland-plans-drastic-cuts-to-prevent-debt-crisis.html