Wall Street Journal Gives Irish Economic Policy the Thumbs Up

parker kent

I thought this made some interesting reading yesterday. Hopefully nobody else has posted it (could not see anything with the search I did). The Irish Independent have reproduced it in their edition today. It makes for something a little different to the usual rabble raising, finger pointing articles/threads about Ireland. A nice piece of rebuttal the people who make out that Ireland is the worst country in the world.

I'm not saying I agree 100% with everything they say, but it is a nice alternative given that they have the benefit of having some emotional distance from any decisions the government make.


http://www.independent.ie/business/irish/at-least-someone-thinks-were-making-the-correct-decisions-2203329.html

SPANISH two-year government-bond yields climbed five basis points to 2.47pc on Monday morning, after Fitch last week cut Spain's triple-A credit rating to double-A-plus. Ireland, on the other hand, has been making do with its diminished rating of double-A-minus since November. And yet yesterday morning, the yield on its two-year government bond was at 1.77pc, down seven basis points from the day before, although its 10-year yields remain elevated.

Meanwhile, both the OECD and the EU's statistics agency predict that Irish growth -- still slightly down for this year -- will pick up to 3pc in 2011, well above their average forecasts for the overall eurozone. What a difference credibility makes.

On the surface, Ireland is in the same trouble as its euro brethren, if not worse. Its deficit-to-GDP ratio last year hit 14.3pc, meaning its apparent ability to pay was even more dubious than Greece's.

The small, open economy was hit early and deeply by the financial crisis and its credit-driven construction bubble popped to reveal a pile of uncovered entitlement promises.

Dublin, along with just about every other red-ink-spattered national treasury, responded by making all the right noises about cutting spending.

So what makes Ireland special? Its political leaders are doing it -- and have been since October 2008. The 'Celtic Tiger' economy was born out of of Ireland's last fiscal crisis in the mid-1980s, another tale of runaway public spending. That eventually spawned supply-side tax cuts to restart public-sector initiative, which allowed for uninterrupted growth from 1994 through 2007.

But while Dublin has learned the importance of non-government enterprise, it couldn't resist indulging itself during the fat years.

Government spending rose by 138pc in the decade before the crash, against economic growth of 72pc, according to Constantin Gurdgiev of Dublin's Trinity College. By September 2008, the national debt was €46.96bn.

Though Ireland's rags-to-riches-to-rags story is more dramatic than most, this tale of rampant government expansion is essentially the same one that Spain, Portugal, Italy and Greece have to tell.

Eighteen months ago, all knew that their welfare states had become unsustainable. But along with the US, they devised ever more lavish Keynesian spending schemes in the name of boosting 'aggregate demand', even as they continued to blow up their own balance sheets.

Ireland wasn't immune and was one of the first European governments to guarantee bank deposits, to the tune of €485bn, along with a 'bad bank' scheme whose price keeps mounting. But Dublin simultaneously told its citizens to get ready for emergency spending cuts and proved it by slicing 10pc off government wages in October 2008.

By April 2009, Ireland had cut public spending by €1.8bn. It also managed to squeeze additional tax revenue out of its strapped citizens, though it achieved this largely by broadening the tax base, for instance by including minimum-wage earners, rather than targeting hikes only at the wealthy.

Crucially, Ireland maintained its 12.5pc corporate tax rate. By the end of last year, Dublin had implemented spending cuts and tax hikes worth about 5pc of GDP.

Turns out they had barely begun to slash. In July 2009, a special board commissioned by the Government presented its report, showing €5.3bn in potential savings for that year alone. The suggestion that made Irish headlines was its recommendation that more than 17,300 public sector jobs could go, along with its note that the Department of Arts, Sports and Tourism could be eliminated.

The Government used the report to cut its 2010 Budget by €4bn and is going through its recommendations to find a further €3bn in cuts for 2011.

So far, public sector workers have seen their pay slashed by up to 20pc, the State's child benefits have been cut by roughly 10pc and unemployment and other benefits have been similarly gutted.

Athens, Madrid, Lisbon, Rome and the rest have finally begun to follow suit, finally having caught on that they can't spend their way back to prosperity.

The last year-and-a-half of Irish asceticism is now seen as Europe's Ghost of Frugality Future and politicians around Europe could do worse than to look at Ireland's cuts as a model.

But as University College Dublin's Colm McCarthy, the chief architect behind the Irish cuts, told us last week: "Anyone can produce programmes (to cut spending). The issue is have they taken the measures?"

Market-watchers remain sceptical that Greece or Italy will make good on their promises, largely thanks to their citizens' outrage at the merest mention of public wages freezes.

Meanwhile, the Irish people deserve credit for greeting their government's attempted return to fiscal sanity with, well, sanity. Protesters and strikers have hit the streets of Dublin since the cutting began, but they have not shut down entire cities and violence has been negligible.

Perhaps the Irish, having seen this before, better realise the dangers of runaway public spending.

It hasn't hurt that Ireland's ruling party, Fianna Fail, has been in the public-opinion doldrums since the start of the crisis, meaning they've had little to lose -- other than their arrears.

ASIDE from bond yields that aren't as high as others in the eurozone, the rewards for Ireland's early frugality have been slow to come. Unemployment remains in the double digits and citizens know there is more pain to come, even if growth does pick up next year.

But as the OECD pointed out in its report last week, the fact that Dublin let living standards shrink along with demand has meant that: "The notable improvement in Ireland's price and cost competitiveness could allow growth to pick up more quickly than expected."

There's no pretending that Ireland's cuts don't hurt in the meantime, or that they would be any easier for Spain, Greece, Italy or Portugal to take on.

But as one of Ireland's less austere sons, satirist PJ O'Rourke, once noted, "You can take 10pc off the top of anything." Can, and did. (©Wall Street Journal)

Lux23

That article is written for investors so its obvious they would be in favour off robbing from the poor to feed the rich. Its interesting though because I wasn't aware that during the boom the economy grew 72pc but spending grew 138pc so maybe its not all the fault of property developers and banks.

Good article.. We've made the difficult choices needed.. Playing the blame game and bitching about the past wont help the future.

Danbo!

Thats an awfully long article for someone with such a short atten..

Indubitable

Lux23 wrote: »

That article is written for investors so its obvious they would be in favour off robbing from the poor to feed the rich. Its interesting though because I wasn't aware that during the boom the economy grew 72pc but spending grew 138pc so maybe its not all the fault of property developers and banks.

Perhaps not but best blame the banks anyway.

parker kent

Lux23 wrote: »

That article is written for investors so its obvious they would be in favour off robbing from the poor to feed the rich. Its interesting though because I wasn't aware that during the boom the economy grew 72pc but spending grew 138pc so maybe its not all the fault of property developers and banks.

Yeah there has to be a pinch of salt taken with anything they say, but it does raise a few nice points. I think it highlights the necessity of many cuts that have happened.

SeaFields

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Bet these people couldn't give a fcuk what the wall street journal thinks...:mad:


PS not a dig at you OP, just the general situation

starbelgrade

I hate when people give the thumbs up - it's such a 90s thing to do.. very Noel Edmonds.

parker kent

SeaFields wrote: »

Latest Live Register Figures

Bet these people couldn't give a fcuk what the wall street journal thinks...:mad:


PS not a dig at you OP, just the general situation

Yeah I know what you mean. That is what I was getting at with the line about emotional distance.

But governments cannot just think of short term situations or individual sob stories. And I can call it a sob story as I have no job at the minute and have no prospect of getting one in what I am qualified to do. I think we just have to hope that the cuts made allow whoever is in charge to get things going again soon.

SeaFields

Thats understandable... I heard Colm McCarthy say on the front line that "emotion is not a policy" but at the same time an unemployment figure of near 14% is one massive economic headache whether you listen to the individual sob stories behind it or not.

But as you say, at least its good news when we are becoming all to familiar with pessimistic outlooks.

Ouijaboard

Great! the shower of cute hoors responsible for putting us in the shiitehole will go on to gain full credit for getting us out of it....by raping us a second time!

Great stuff, we can shout about how great they are when we vote em in again in about 5 years time when we've all forgotten about the recession....only for them to go off and bend us over again!

wes

Well, there hardly going to start bad mouthing the only country, engaged in there favours type of economics.

melekalikimaka

nice to see a different perspective in ah for a change... this issue it very personal to the irish, as a result we see things through rage tinted glasses

aDeener

we dont take too kindly to posts that show the government in a positive light round here....

parker kent

aDeener wrote: »

we dont take too kindly to posts that show the government in a positive light round here....

Oh sorry, wait a sec....*gets pitchfork and torch*...dey toooook our jobssssssss!!!!!

ScumLord

I don't think wallstreet really has the interests of the Irish people in mind when they say this is good news. It just means Ireland will be a good place for all their shady deals again.

The current banking system is fundamentally flawed, I don't see the point in fixing it because it will fail again, it happens so regular now it allows those at the top to turn the bust into a boom for their own private funds.

ricman

see here http://www.independent.ie/opinion/columnists/david-mcwilliams/david-mcwilliams-nama-just-a-bailout-for-the-professional classes
HE says nama is just a scheme to rescue the banks and elites and it will be a disaster because a some point the bond holders will see thru it and will not lend to the banks.
So the government seems to have decided to rule out any more wage decreases to the civil servants which makes no sense to me when wages are half the running costs of the state.They seem to be hoping the falling euro will save the economy by stimulating exports .

thebigbiffo

i'm probably in for a virtual lynching here but...

i respect the governement for what they done since this recession started and i'm happy with FF in power. yes, i know gov policy helped feed the bubble and led to runaway spending - but the FG's and Labours of this world would have done just the same thing if they were in power when there was a seemingly endless stream of money coming in. it's on the record ffs, remember the GE where all parties were campaigning on the back of how mmuch better they could do at basically spending our money.

i for one wouldn't trust any of the opposition parties to get us out of this mess and the interesting point from that article - and a view i had myself the last 2 years - is that FF's unpopularity was a good thing. as they say here - the gov had nothing to loose and could get us back on track by making unpopular decisions.

i think lenihan and co* have acted decisively in dealing with the severe downturn and - barring a couple of issues** - on the whole i'm happy with how they've dealt with the countries problems

*despite my username BIFFO should have resigned as he was minister for finance and should have taken personal responsibility for not seeing the size of the mess that was on its way
**let anglo burn. i'm not happy pumping billions of my money into that black hole and i couldn't give a flying f'uck about their shareholders

aDeener

thebigbiffo wrote: »

i'm probably in for a virtual lynching here but...

i respect the governement for what they done since this recession started and i'm happy with FF in power. yes, i know gov policy helped feed the bubble and led to runaway spending - but the FG's and Labours of this world would have done just the same thing if they were in power when there was a seemingly endless stream of money coming in. it's on the record ffs, remember the GE where all parties were campaigning on the back of how mmuch better they could do at basically spending our money.

i for one wouldn't trust any of the opposition parties to get us out of this mess and the interesting point from that article - and a view i had myself the last 2 years - is that FF's unpopularity was a good thing. as they say here - the gov had nothing to loose and could get us back on track by making unpopular decisions.

i think lenihan and co* have acted decisively in dealing with the severe downturn and - barring a couple of issues** - on the whole i'm happy with how they've dealt with the countries problems

*despite my username BIFFO should have resigned as he was minister for finance and should have taken personal responsibility for not seeing the size of the mess that was on its way
**let anglo burn. i'm not happy pumping billions of my money into that black hole and i couldn't give a flying f'uck about their shareholders

FF have a lot of bad eggs that needs ridding of, if they want to have any notion of coming close to staying in power. they have a corrupt image at the moment and these people need to be turfed out of the party if they are going to prove to the public that they are serious in turning things around