jase, on the whole id say im more concerned about this one than Greece. With greece, its a bit of a joke about corrupt Greeks who never pay their taxes and wont listen to reason. With Ireland we have an example of a state which has done everything asked of it as regards cutting back and austerity, without much public protest. And it isnt working. I really dont thgink anyone should be worrying about their pension in 20+ years. It just might be the ones ones retiring right now with gold plated pensions who are in for a nasty surprise.
Yes, I agree. Though I think there is enough worry to include those who will take their pensions in 20+ years as well as those retiring soon or retired.
The comparison with Greece is informative. Ireland has done everything asked and it has still gone wrong. The message for Greece (and Portugal) has to be don't even bother trying - it doesn't work. Sometime around a year or more ago these countries crossed a line from which there was no way back whatever they did.
The comparison with the UK is also informative. I think there are four differences:
1) Ireland is a much smaller economy and therefore much more vulnerable to external bumps. The (reasonable) view of Ireland has always been that it is too small to float a truly independent currency and since 1922 has used the punt (variously fixed and float-pegged against the pound) and the euro.
2) Much Irish debt is due soon - by contrast the big UK debts run up by the last government are not due for some years.
3) Ireland is not able to set the base rate for its currency, nor can Ireland practice quantitative easing.
4) Ireland is not able to allow its currency to devalue to an appropriate rate for its economy.
Circumstance (1) is a consequence of being a country with a population just over 6m, small even in European terms. (2) was exacerbated by the easy credit given by the eurozone both to countries and individuals - the Irish housing boom was not caused by the euro but was bigger because of it. (3) and (4) are direct consequencies of being in the euro.
A view today is that a requirement of the ECB bailout will be that Ireland increases its corporation tax from the present 12.5% to the eurozone norm of 30-35%. This is particularly an issue for Germany which has lost companies to Ireland because of corporation tax. The consequenceise of such a move will be devastating for Ireland. Very many companies will move out. The view is that the ECB requirement will create astronomic unemployment and make it unthinkable for Ireland to get out of its mess for as many years ahead as anyone can predict. Now of course this may not happen (but IMO it pretty certainly will as Germany is the biggest payer in a bailout). And the restrictions on freedom of tax and spend hinted at by Germany may not happen (but IMO there will be some sort of restriction on Irish freedom and Irish representation). We really are IMO looking at economic colonisation.
There's a virtual media blackout on the story. I suppose the media haven't got a statement or document or photo to hang a story on. Background music has to be the weakness of ruling Fianna Fail, presently leading a Coalition with a majority of one but facing a December by-election (Donegal NE) which they are unlikely to win. There are real difficulties around leadership - in this case a "Grand Alliance" with Fine Gael would make sense, and maybe the crisis will bang heads together.
Ireland has a choice. It can accept the ECB bailout which probably means a de facto (and even de jure) loss of Irish independence and almost certainly at least a generation of relative poverty. Or it can refuse the ECB bailout and instead take funds from the IMF. The IMF requirements will be threefold:
- an austerity programme pretty much as Ireland has already in place.
- a restructuring on debts. The Irish debts may merely need restructuring, not a full default. Curiously they aren't so terrible outside of the context of the euro.
- leave the euro and float a currency (which will devalue significantly against the euro).
This scheme would bring Ireland back into prosperity in around 5 years. It leaves all key decisions to the Irish government (with IMF scrutiny, but Ireland is already doing what is wanted). It keeps the Irish low corporationn tax and therefore its business base so sky high unemployment will be avoided. It risks Ireland being kicked out of the EU, but note that it is likely to lose much of its representation anyway. Pre-EU bilateral trade agreements with the UK mean that Ireland cannot be kicked out of a free trade area (as in theory Greece could be).
IMO there will be hard talking between Ireland and the ECB, but IMO it is a no brainer for Ireland,
if the Irish government can muster the political leadership. The downside of taking IMF funding is that an independent Irish currency could only be transitional and the only realistic alternative is a return to a sterling peg. And in the present climate that does mean some much closer relationship with the UK. IMO this would have to be a commonwealth (as a technical term, not the British Commonwealth) where two sovereign nations work very closely together. And that would be a difficult issue for a country that has built its national story on a struggle with the UK and a hard won independence from the UK.
The UK is badly exposed to Ireland and we badly want a solution - and the ECB offers only years of muddle. In the longer term a closer link with the R of I might lead to a more durable solution to the issues around the island of Ireland, as well as seamless access to the port of Limerick (shortest trans-Atlantic freight crossing).
