Edwina Curry - our financial problems

femur61

Edwina Curry was on Brendan O Connor last night, he asked her why the UK was willing to give Ireland a dig out. Her reply was that we are a huge trading partner of the UK so within their interest. But, she also said that their is little sympathy for us, as we have even with our reduction a much higher minimum wage, our social welfare system is double and in some cases three times higher than theirs. I know this is one of their concerns from reading the replies to the stories on SKY News when they report on the deficit, not the banking but fiscal deficit, they they say its no wonder. If people have less money they we spend less.

If businesses take in less they will adjust and lower their prices to meet the prices people can pay. I see restaurant offering an evening meal for two at €30 -€35 are overflowing with people.

ArseBurger

femur61 wrote: »

I see restaurant offering an evening meal for two at €30 -€35 are overflowing with people.

People still have too much disposable income so. Taxes need to be raise by another 10% at least.

Bob_Latchford

Anyone who doesnt say this crisis begins and is total dominated by banks and bank regulation is spinning a line from their ideology imo.
Curry was in the party that pushed interest rates to 15% or something and collapsed the pound after black thursday ERM pullout.

I doubt many in UK would understand that this is a banking crisis rather than people who partied and have a hangover.

might have misread the OP. Would be interesting to compare cost of living between uk and Ireland. I would not take Currys comparison using dole as gospel though. free health care in uk. cheaper electricity, cheaper food etc etc.

sollar

I don't think her little joke at the beginning where she took in some sterling went down to well.

ninty9er

Our banking issues mean we need the loan. Our fiscal issues mean we would have had to cut anyway but would have been able to borrow from the markets at reasonable rates were it isolated to fiscal issues.

The banking collapse has exacerbated an easily fixable problem to the extent that we had a common cold (fiscal crisis) which coupled with other conditions (banking crisis and global downturn effect on exports) lead to the patient catching pneumonia and ending up in intensive care.

gonedrinking

Bob_Latchford wrote: »

might have misread the OP. Would be interesting to compare cost of living between uk and Ireland. I would not take Currys comparison using dole as gospel though. free health care in uk. cheaper electricity, cheaper food etc etc.

Yes but a part of the reason the cost of living is lower in the UK is because their dole is so much lower and their minimum wage is lower, if Ireland dropped these 2 items by any significant amount then our cost of living would start decreasing, its as simple as that.

bigjohnny80

Those on minimum wage have enjoyed a 20% payrise in recent years due to deflation.

This proposed cut still leaves them better off.

later12

gonedrinking wrote: »

Yes but a part of the reason the cost of living is lower in the UK is because their dole is so much lower and their minimum wage is lower, if Ireland dropped these 2 items by any significant amount then our cost of living would start decreasing, its as simple as that.

You are bang on here, but I would also add other current spending to that list, including civil service and public sector pay.

Public sector pay, jobseekers' spending and minimum wage, pretty much constitute the 'high/ low' switch for inflation in this economy.

Scofflaw

I can't help but point to what Fianna Fáil seem to regard as a list of achievements from the four year plan:

From the late 1990s, the benefits of our booming economy were felt across every section of the population. Working-age social welfare rates are now more than twice their rate in 2000. Over the same period, the State pension almost doubled. These increases were well ahead of the cost of living.

Public service pay also increased well ahead of inflation. From 2000 to 2009 average public service salaries increased by 59%. At the same time, taxation was reduced. During the period after 2000, the entry point to income tax increased from €7,238 to €18,300 for PAYE earners and since 2000, bands have widened by 105% for the single person and married two earners. Credits have increased by 92% since their introduction in 2001. The standard and higher tax rates fell from 26% and 48% in 1997/98 to 20% and 41% by 2007.

As a result of these changes, the proportion of income earners exempt from income tax increased from 34% in 2004 to an estimated 45% in 2010. It is now estimated that for the current year, 42% of income earners will pay tax at the standard rate and just 13% will be liable at the top rate.

The substantial reductions in tax and increases in welfare were made possible by the very high level of property-related tax receipts taken in by the Exchequer during the boom years. The property boom also swelled VAT and other receipts. In 2007, capital taxes and stamp duty yielded €6.7 billion. This year, that figure is expected to fall to as low as €1.6 billion. In these dramatically changed circumstances, it is clear the State can no longer afford the current levels of social provision and personal taxation.

Goodness me - could any of that have affected our competitiveness? And could this have affected our banks:

This boom needs to be seen also in the context of Ireland’s strong and extended expansion during the previous decade, when the economy caught up with and surpassed average EU living standards. This fostered expectations of a continued rise in living standards and in asset values. Another factor, with even deeper roots, was the strong and pervasive preference in Irish society for property as an asset, and the fact that Ireland had never experienced a property crash.

This was a setting in which official policies and banking practices faced key challenges. There was scope to mitigate the risks of a boom/bust cycle through prudent fiscal and supervisory policies, as well as strong bank governance – thus raising the chances of a “soft landing” for the property market and for society at large. In the event, official policies and banking practices in some cases added fuel to the fire. Fiscal policy, bank governance and financial supervision left the economy vulnerable to a deep crisis, with costly and extended social fallout.

While global and domestic factors thus interacted in mutually reinforcing ways, it is feasible to disentangle the main “home-made” elements in the debacle.

Fiscal policy heightened the vulnerability of the economy. At the macroeconomic level, it should have done more to dampen the powerful monetary and liquidity impulses that were stimulating the economy. Budgets that were strongly counter-cyclical could have helped to moderate the boom, and would also have created fiscal space to cushion the recession when it came. But budgetary policy veered more toward spending money while revenues came in. In addition, the pattern of tax cuts left revenues increasingly fragile, since they were dependent on taxes driven by the property sector and by high consumer spending. Ireland was also unusual in having tax deductibility for mortgages, and significant and distortive subsidies for commercial real estate development, yet no property tax. As the boom wore on, some external and domestic commentators were critical of fiscal policy. The OECD flagged the case for greater prudence. The European Commission worried about procyclicality in policy as early as 2001; and by 2007 it flagged clearly the fragility of tax revenues.

Nonetheless, EU Council Opinions were favourable: with earlier fiscal reforms and the impact of the boom, Stability and Growth Pact commitments did not seem in doubt. Equally, the IMF was not strongly or consistently critical of the underlying dynamics of fiscal policy. In the event, when the boom ended, fiscal policy was left cyclically and structurally depleted. There was no room for manoeuvre to support the economy. Indeed, the need to restore sound public finances left no choice but to tighten policy as output fell and unemployment rose.

In this macroeconomic setting, bank governance and financial supervision faced major challenges.

Banks, moreover, were operating over the past decade in a setting of greatly increased wholesale funding opportunities, following adoption of the euro; and banks from abroad began to compete strongly in retail mortgage lending. Against this backdrop, strongly risk-averse reactions by banks in Ireland and their supervisors would have been needed to help dampen a very risky boom-bust cycle.

It appears clear, however, that bank governance and risk management were weak – in some cases disastrously so. This contributed to the crisis through several channels. Credit risk controls failed to prevent severe concentrations in lending on property – including notably on commercial property – as well as high exposures to individual borrowers and a serious overdependence on wholesale funding. It appears that internal procedures were overridden, sometimes systematically. The systemic impact of the governance issues crystallised dramatically with the Government statements that accompanied the nationalisation of Anglo Irish Bank. Some governance events are already under investigation. There is a need to probe more widely the scope of governance failings in banks, whether they were of a rather general kind or (apparently in far fewer instances) connected with very serious specific lapses, and whether auditors were sufficiently vigilant in some episodes.

The response of supervisors to the build-up of risks, despite a few praiseworthy initiatives that came late in the process, was not hands-on or pre-emptive. To some degree, this was in tune with the times. The climate of regulation in advanced economies had swung towards reliance on market risk assessment. Domestically, moreover, there was a socio-political context in which it would have taken some courage to act more toughly in restraining bank credit. The weakness of supervision in Ireland contrasts sharply, however, with experience in those countries where supervisors, faced with evident risks, acted to stem the tide.

Has a boom ever been blown so comprehensively, while at the same time, people believed it was only ever going to get boomier?

cordially,
Scofflaw

Bob_Latchford

gonedrinking wrote: »

Yes but a part of the reason the cost of living is lower in the UK is because their dole is so much lower and their minimum wage is lower, if Ireland dropped these 2 items by any significant amount then our cost of living would start decreasing, its as simple as that.

Agree every little bit helps. Public sector pay would be another reason. Dont know how minimum wage & dole affects cost of living. I imagine they are more headline grabbers than having significant effect. would guess housing & food electricty, water the necessities of life, would have more impact but dont know really.