European economic confidence increases - good for Ireland?

daithiolabhrai

http://www.irishtimes.com/newspaper/breaking/2009/0828/breaking52.htm

Okay, so I don't know loads about economics or anything, but surely the recent upturn in the French and German economies has to be good for Ireland. As consumer confidence rises abroad so too should our exports, right? So surely we should be making a rebound soon too, no? And with the UK and the USA also set to grow slightly by the end of the year, it has to be good for our small open economy, right? So why do I keep reading everywhere that we won't start our recovery until 2011? What's holding us back?

Het-Field

daithiolabhrai wrote: »

http://www.irishtimes.com/newspaper/breaking/2009/0828/breaking52.htm

Okay, so I don't know loads about economics or anything, but surely the recent upturn in the French and German economies has to be good for Ireland. As consumer confidence rises abroad so too should our exports, right? So surely we should be making a rebound soon too, no? And with the UK and the USA also set to grow slightly by the end of the year, it has to be good for our small open economy, right? So why do I keep reading everywhere that we won't start our recovery until 2011? What's holding us back?

The fact that we shall bottom at at a drastically lower level than France or Germany. They had recession, while Ireland is in fully blown depression. Our reckless banks, our governmental idiocracy, and the absence of onfidence vis-a-vis Ireland. We engaged in wantonly stupid spending, which was brought on by a bubble which was guaranteed to burst. It was a false economy, and as such, their emergence from recession is of no real benefit to Ireland. This was equally articulated by an article in the most recent copy of the Economist, which highlights how far the likes of Spain are from recovery. Remember, the OECD and IMF reports highlight how overheated our economy is.

We are in a highly dangerous position, and there is NOTHING being done at the moment, save for Cowen waffling on about Ted Kennedy, and John O Donogue shirking questions about expenses. 2011 is a very generous government estimate on when we shall retun to growth, and it is not founded on anything solid. Ireland is in a far bigger hole than anything ever experienced. IOur problems are not going away anytime soon, and Gremany and France's experience are of no real relevance.

greendom

Het-Field wrote: »

The fact that we shall bottom at at a drastically lower level than France or Germany. They had recession, while Ireland is in fully blown depression. Our reckless banks, our governmental idiocracy, and the absence of onfidence vis-a-vis Ireland. We engaged in wantonly stupid spending, which was brought on by a bubble which was guaranteed to burst. It was a false economy, and as such, their emergence from recession is of no real benefit to Ireland. This was equally articulated by an article in the most recent copy of the Economist, which highlights how far the likes of Spain are from recovery. Remember, the OECD and IMF reports highlight how overheated our economy is.

We are in a highly dangerous position, and there is NOTHING being done at the moment, save for Cowen waffling on about Ted Kennedy, and John O Donogue shirking questions about expenses. 2011 is a very generous government estimate on when we shall retun to growth, and it is not founded on anything solid. Ireland is in a far bigger hole than anything ever experienced. IOur problems are not going away anytime soon, and Gremany and France's experience are of no real relevance.

This is very true but just as the failings of the Irish economy were made worse by the global downturn so some improvement can be expected when the World economy picks up. Things won't be quite as bad as they could have been

PMC999

One negative aspect to Germany and France moving out of recession is that it brings closer the day when the ECB increases interest rates. A lot of people in Ireland have been cushioned by lower mortgage payments from the effects of both pay cuts / public sector pension levies and increased taxes. Once interest rates go up again this will put more people under pressure as the Irish economy will lag behind Germany and France.

Het-Field

greendom wrote: »

This is very true but just as the failings of the Irish economy were made worse by the global downturn so some improvement can be expected when the World economy picks up. Things won't be quite as bad as they could have been

Terrible thing is, it cannot be understated how badly our domestic situation is. THis is extraneous from the world downturn.

Equally, the point below about increased interest rates will hit Ireland also.

amacca

PMC999 wrote: »

One negative aspect to Germany and France moving out of recession is that it brings closer the day when the ECB increases interest rates. A lot of people in Ireland have been cushioned by lower mortgage payments from the effects of both pay cuts / public sector pension levies and increased taxes. Once interest rates go up again this will put more people under pressure as the Irish economy will lag behind Germany and France.

Too true, this will cause massive problems for people teetering on the edge.

thebman

Can't the government reduce taxes when that happens to prevent people going behind the brink so to speak as we'll be taking in more taxes from trading as exports rise and consumer confidence rises slightly as some people working in export areas will see their industries recover and so will be more confident about keeping their jobs and more likely to spend.

I know its limited because of all the borrowing but if its let half the citizens go bankrupt or borrow some more then its going to have to be borrow some more realistically as it won't be good if many people fail to pay mortgages anyway as the banks will need more bail out money.

Sand

Yup, people who borrowed anything more than a fiver over the past few years ought to be praying for economic meltdown in Germany and France because if theyre recovering whilst were still in the depths of depression, the ECB interest rate policy will move exactly the wrong way for Ireland. Again. And with massive private debt, massive unemployment, higher mortgage payments...

The ECB interest rates wouldnt be a big problem if Irish politicians and the social partners could get their heads around the idea of fiscal restraint and discipline. Until they do, it will be more by chance than design that ECB interest rates will suit Ireland.

peasant

Don't know about France, but Germany is far from over the hump.
While the downward trend seems to have stopped, the upward movement is (and will be for the forseeable future) very timid.

The problem is the backlog of unempolyed-to-be workers. German industrial production has shrunk some 23% over the last 1 1/2 years. It is now predicted to grow by some 2% over the next year. That still is a shortfall of 20% to previous levels.

Due to German employment laws and economic policy, during the downward trend a lot of surplus employees were kept on shortened working hours with the pay difference made up for by the state.

As the downward spiral was so rapid and drastic and recovery will be slow, there are a lot of workers surplus to requirements who will (very soon) have to be let go once the governement subsistance runs out (there is a time limit on this) who will then join the dole queue proper.

Also the scrappage scheme for cars (great sales success that it was) only delayed the inevitable and there are predictions of 90.000 automotive jobs to be lost fairly soon.

All these newly unemployed people will further weaken domestic demand and with the world economy being what it currently is, export led growth (if any) will be very small.

Personally I wouldn't be surprised to see German figures going negative again in quarters to come.

daithiolabhrai

PMC999 wrote: »

One negative aspect to Germany and France moving out of recession is that it brings closer the day when the ECB increases interest rates. A lot of people in Ireland have been cushioned by lower mortgage payments from the effects of both pay cuts / public sector pension levies and increased taxes. Once interest rates go up again this will put more people under pressure as the Irish economy will lag behind Germany and France.

That's a very interesting point. I guess being members of the EMU has its disadvantages too. But it has saved us from utter collapse, so I'll happily let them raise the rates a bit! Not that I'd be able to stop them anyway lol!

RealityCheck

PMC999 wrote: »

One negative aspect to Germany and France moving out of recession is that it brings closer the day when the ECB increases interest rates. A lot of people in Ireland have been cushioned by lower mortgage payments from the effects of both pay cuts / public sector pension levies and increased taxes. Once interest rates go up again this will put more people under pressure as the Irish economy will lag behind Germany and France.

Another one I'd be concerned about should the world economy recover is the price of oil considering our over dependency on it. If the world economy recovers too soon it may cause us to choke somewhat. This country needs to sort itself out over the next year and hope that there is no serious world recovery until 2011. We really dont need to get beached on the sand so to speek when the recovery comes.

Coles

daithiolabhrai wrote: »

That's a very interesting point. I guess being members of the EMU has its disadvantages too. But it has saved us from utter collapse, so I'll happily let them raise the rates a bit! Not that I'd be able to stop them anyway lol!

Don't fully agree with you. If we had control of our own currency/interest rates we could devalue our currency to improve our competitiveness in the hope of emerging from our difficulties quicker. The argument is often made that we also may have avoided the catastropy of Bertie's Bubble, but in fairness I think FF would have found a way to enrich their patrons one way or another. Higher rates are coming, and the Irish banks will probably add a surcharge of 3-4% on top of the ECB rate in the hope of staying afloat.

Sand

Devaluation would be a bad thing.

- If the government had the option of devaluation, investors would flee from holding Irish denominated assets before they did - capital flight would annialate us.

- A 30% devaluation makes you 30% poorer - you just dont realise it. It hits *everyone* as opposed to a more carefully managed solution. And if anything, the richest, who are more likely to hold foreign denominated assets, might actually come out of it relatively richer.

- The competiveness gain of 30% devaluation can just as easily be achieved by cutting wages and prices by 30%. Only then people realise they are poorer...so they dislike it.

It is honestly far better for Ireland that Fianna Fail cannot pull the magic devaluation lever anymore. They simply cannot be trusted with that sort of power. If fiscal discipline is maintained, we dont need to worry about devaluation. And before Id give a government the ability to devalue Id like them to get fiscal policy and restraint right first. Baby steps...

Even with the interest rates moving against Irelands economic path, the government still had control of fiscal and tax policy - they could have removed tax breaks that created the bubble, they could have introduced property taxes to cool demand, they could have saved the windfall on stamp duty to create a reserve for a rainy day, they could have banned 100% mortgages and other mortgages aimed at high risk borrowers, they could have closely monitored the banks and enforced strict capital ratios. They did none of this, and instead went completely the opposite direction.

Giving them control of exchange rates and the ability to devalue would just give them another powerful economic tool to abuse and misuse.

ei.sdraob

Sand wrote: »

Devaluation would be a bad thing.

- If the government had the option of devaluation, investors would flee from holding Irish denominated assets before they did - capital flight would annialate us.

- A 30% devaluation makes you 30% poorer - you just dont realise it. It hits *everyone* as opposed to a more carefully managed solution. And if anything, the richest, who are more likely to hold foreign denominated assets, might actually come out of it relatively richer.

- The competiveness gain of 30% devaluation can just as easily be achieved by cutting wages and prices by 30%. Only then people realise they are poorer...so they dislike it.

It is honestly far better for Ireland that Fianna Fail cannot pull the magic devaluation lever anymore. They simply cannot be trusted with that sort of power. If fiscal discipline is maintained, we dont need to worry about devaluation. And before Id give a government the ability to devalue Id like them to get fiscal policy and restraint right first. Baby steps...

Even with the interest rates moving against Irelands economic path, the government still had control of fiscal and tax policy - they could have removed tax breaks that created the bubble, they could have introduced property taxes to cool demand, they could have saved the windfall on stamp duty to create a reserve for a rainy day, they could have banned 100% mortgages and other mortgages aimed at high risk borrowers, they could have closely monitored the banks and enforced strict capital ratios. They did none of this, and instead went completely the opposite direction.

Giving them control of exchange rates and the ability to devalue would just give them another powerful economic tool to abuse and misuse.

exactly devaluation is the most evil form of stealth taxation

over in the UK everyone was made a third poorer relative to other currencies etc in order to pay for brown's mistake

here in ireland the people getting hit the hardest are the ones who were most reckless

they get what they deserve

Coles

The government did introduce an Anti Speculative Property Tax in 2000/1 on foot of the Bacon III Report, but following intense lobbying it was got rid of 6 months later.

Now, why would you get rid of an Anti Speculative Property Tax? Only if you wished to create speculation in property.

RealityCheck

Coles wrote: »

The government did introduce an Anti Speculative Property Tax in 2000/1 on foot of the Bacon III Report, but following intense lobbying it was got rid of 6 months later.

Now, why would you get rid of an Anti Speculative Property Tax? Only if you wished to create speculation in property.

Thats corruption in my book :mad:. Good aul Charlie McCreavey was responsible no doubt.