Ireland's Economy in Free Fall Collapse
Once known as the "Celtic Tiger" for its sustained record of double-digit economic growth, Ireland is now in the midst of a financial tsunami. Unemployment is soaring, economic activity is contracting, banks are over-loaded on toxic assets and government spending is out of control. In many ways, Ireland seems to be a microcosm of the United States, only with a Gaelic accent. However, sheer size and the status of the U.S. dollar as the world's reserve currency has delayed the full replication of what Ireland is currently experiencing. For that reason, what is occurring to the Irish economy in the present may be a window of what might soon lie ahead for the United States.
The strength of Ireland's economy during its glory years was largely based on the seeming success of the globalization economic model. International businesses, especially in the high technology sphere, set up shop on the Emerald Isle, taking advantage of a well educated, cost-competitive workforce in close proximity to the European mainland, and an economy fully integrated into the Eurozone. This globalized corporate presence ended the historic migration of Irish workers overseas, as the local economy's demands even drew immigrants from Eastern Europe into Ireland. The increase in domestic opportunities contributed to a massive explosion in property prices. Irish banks bet heavily on securitized assets, as the financial sector assumed a leading role in the Irish economy. This is a scenario we have seen elsewhere, and led to Ireland being especially vulnerable to the consequences of the Global Economic Crisis.
Since the onset of the synchronized global recession, the Irish economy has undergone a rapid contraction, erasing almost overnight the economic gains of the past several years. Unemployment in the Irish republic stands at near 11%, and is likely to get much worse. According to Ireland's Central Statistics Office, the nation's GDP shrank by 7.5% in Q4 of 2008. Added to these grim numbers hangs the dismal situation characterizing Irish banking and financial institutions; approximately $110 billion of toxic assets are eroding their balance sheets.
The Irish Taoiseach, Brian Cowen, has reacted with desperation. Recently, his government unveiled a second emergency budget. Ireland's finance minister, Brian Lenihan, submitted a spending plan that contained a smorgasbord of selective tax increases and spending cuts. These steps were taken in recognition of the dual emergency facing the Irish economy. The once "Celtic Tiger" is not only incurring massive unemployment and social distress; the collapse in revenues has driven the nation's budget deficit through the roof. The steps proposed by Lenihan sought to reduce the government's budget deficit from nearly 14% to about 10.75% of GDP. These steps were not nearly enough to comfort the worried rating agencies. Standard and Poor's has removed Ireland's coveted AAA rating, while Moody's downgraded all 12 Irish banks.
With expenditures of 55 billion euros and revenues falling below 35 billion euros, Ireland is facing the daunting paradox confronting a growing host of nations, including the United States. The politicians maintain they cannot implement draconian spending cuts in the face of severe human hardships being created by the Global Economic Crisis. Yet, mathematical realities may constrict the ability of political leaders to infinitely borrow money in order to maintain high structural deficits. With the rating agencies having made their move, the ability of Ireland to finance its deficits through the largess of the global credit market will become increasingly more problematic. It appears that the IMF may be the ultimate lender of last resort for Ireland, and that kind of assistance will impose costs of its own.
The economic catastrophe facing Ireland will cause sorrows that cannot be suppressed by a pint of Guiness. Nothing less than national insolvency threatens this once robust economy. And lest the United States pretend that the economic collapse now underway in Ireland is irrelevant to its own situation, the elements that have brought down the "Celtic Tiger" are almost identical to those now eating away at the very foundation of the U.S. economy.
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I live in Ireland and we are gripped in the greatest catastrophe since the year of the Great famine 1847. Our entire economy is in collapse, everyone has lost confidence, people are commiting suicide. 1 in every 8 is now on Government welfare worth around $300/week so the country cannot sustain this. The country is ruined but now there is no escape valve to the US as emigration is not an option for most. I have begun growing my own crops as I own my own land and have begun stockpiling Diesel & Petrol (GAS) fuel and ammunition also as in Ireland the apocalypse is upon is. No one has confidence and food shortages are becoming common while the government presides over the biggest crisis since the Irish civil war. God save us all and god bless Ireland and America.
I have faith that the United States will emerge from this crisis better and stronger than it was before.
Saints preserve us!
Well I don't know about Ireland, but I know about Michigan. Michigan is in a Great Depression II. The last one to leave Michigan, please turn out the lights!
Gene
Roseville, MI.
Heh, believe me or not, your choice, but I offered your governor a chance to revitialize your state's economy based on a solution to an approaching economic diaster. No reply. Same to Louisiana.
Everyone is waiting for a big auto company or computer manufacturer to locate in their state. Ain't gonna happen, as we all know. But no one sees the real promise of biotech and nanotech.
Ireland, Iceland, Poland, and most of emerging Europe and Asia will see themselves in a similar fate. As was stated by Peter Schiff, and others, the US is getting the lion's share of sovereign wealth funds and other nation's central bank funds in order to pay for our debt. Therefore, there is little to invest in other countries. More than likely, there will be a time when these foreign lenders will decide that the US is not paying off and the gravy train will stop. Then we will experience what is happening to other nations around the world.
http://eye
Rush says 'Yea!!!'
"In many ways, Ireland seems to be a microcosm of the United States, only with a Gaelic accent. "
You may want to explain that a little bit more in detail. Ireland's success is mostly one of attracting companies by offering them low taxes. How does that compare to the US, again? When did we offer low federal income taxes to corporations which wanted to set up shop here? Not to mention... when did we offer a well educated labor force?
Just sayin'...
Kill,
The US did this: they gave federal income tax breaks to companies to NOT set up shop in the USA.
The sad thing is that Ireland was not contaminated by the toxic paper from US subprime mortgages,but by an insane property boom and mad government spending.M
Here in Ireland, I don't think people are feeling the hysteria your headline aims for.
The real problem here is that our tax base has been far too narrow. We've had the lowest corporation tax rates and the lowest real income tax rates in the West. Some 40% of workers paid no tax, while the legally enforced minimum wage was one of the world's highest. We bolstered our tax take through property-related taxes, which have evaporated now that our housing market bubble has burst. So the entire tax system has to be overhauled. It will be gradual, but it's already begun.
Revenues falling below E35bn? That was our revenue base only six years ago, and the country was in good shape then. So there's plenty of expenditure that can be trimmed back yet, while still allowing us to maintain a decent standard of living.
Unemployment may have rocketed here - but it's at the same rate it was in 1996. We survived. We are indeed vulnerable owing to our dependence on inward investment, but that has always been the case.
So things may look grim, but we are not about to bust. The toxic debt problem is being managed. The people are still highly-educated, mobile and adaptable.
I came of age in the 1980s here, when unemployment was hitting 18%, interest rates were above 15%, inflation was at 12%, mass emigration was taking place. There were Cassandras then, as now. Reports of our demise, once again, are greatly exaggerated.
It's a figment of our imagination. Oh sure.
Well yes - the idea that the Irish economy is in "free fall collapse" is inflating a genuine crisis into an imagined disaster. I have set out my reasons for saying so above.
If you happen to live through 25% (official!) unemployment in some parts of the new Bundeslaender in Germany after the reunification, you tend to laugh all this fear-mongering off quite easily. Americans, especially American bloggers who make up their stories in their own minds instead of actually researching the subject, tend to dramatize these events worse than Hollywood action movies do.
Well said - one could argue realistically that the 'imagined disaster' you reference in this headline, is exactly what's happening in the states as well. While no one can argue that a significant economic decline is happening, the gloom and doom of the MSM, who tends to manipulate a story's importance on a slow news day, has a lot to do with the recent free-fall of our economy. The fact that the 'gloom and doom' is seemingly subsiding into stories of growing profits, rising mortgages and house prices, is proof of this as well. Folks like Jon Stewart who maintain successful careers in the MSM, by making mountains out of molehills, and in-essence 'shooting the messenger' only added fuel to this fire.
I specifically remember about 2 weeks back...the market had been gaining for days and was on an upward trend. Friday of that week, saw stocks seesawing around the break even point, but ended up a few points down. Even though stocks were up by 4-5% for the whole week, the headline on the story was something like 'stocks slump, end 4-day rally.'
Either way, folks would be wise to take full advantage of this current decline, by buying into Real Estate if they have the means. I have a few relatives who were looking to buy a summer home for the family in Dingle, Kerry a few years back, but couldn't due to high prices. They are looking back into it now.
Don't get too happy. The late 20's and early 30s has records of dozens of rosy "prosperity is right around the corner" statements such as yours. In my location, home prices are still falling, and though there's more sales, unsold inventory isn't drying up, as the rate of foreclosure holds steady. I'm unable to take advantage of the situation, as my job evaporated last week, and another is probably not on the horizon for this year. Try going to a bank and telling them, "Well, I've cobbled together a reasonable down payment, but I'm likely going to be out of work for at least the next 9 months..." My 401k is still worth only a fraction of what it was 12 months ago.
Thank you wheelie for the inside scoop.I have visited there several times and know it is a very young country that has achieved much in it's short life as an independent nation.The people are still there and they are the main force for renewal.Go
It's very sad. I was over there in early 2007 on a tour and still the Celtic Tiger was going on. The EU had invested a lot of money rebuilding the country's infrastructure and you see new roads, highways, bridges, tourist facilities, planting of new forests (and EU requirement) to improve the environment, and lots of new housing -- obviously in retrospect, way too much of the latter resulting in too much credit and debt. Ireland has been the underdog in Western Europe for so, so long, hundreds of years, it was nice to see it finally making it with all the investment by overseas companies, including a number of American tech companies. I don't think their situation mirrors the US because they seemed to rely predominently on foreign investment and foreign companies setting up shop on their shores along with EU investment and did not have a lot of big industry of their own. Their own industries (including Waterford and Guiness, Irish marble mined not far from Shannon, wool industry) were not sufficient to cause a boon in the economy and their economy didn't take off until 20 odd years ago when they joined the EU and foreign companies saw Ireland as a good place to get skilled labor and as a European base in an EU English-speaking country just a short flight over the Channel to the Continent.
Ireland's growth depended largely on subsidies from the European Union. If any country is a model of how economic stimulus fails in the long run, this is it.
Except that Ireland hasn't failed, of course. You are projecting your own gloom and doom wish on a country that is simply experiencing an economic slowdown. Since you have no better crystal ball than any of us you can't tell that Ireland has failed once and for all. More likely than not it will recover from this just as nicely as the rest of the world. Why wouldn't it?
Are the Rose Colored Glasses prescribed? Who's your eye doctor? I want to order a pair too!
The world still produces over $55 Trillion in annual commerce.
We are all having to adjust and change.
This "mistake" which is presently being driven down our throats chokes the US no less.
Remember: "This is all about fear."
Buck up! Obama has at least made an effort to sell his shot at it. How many of us have ever seen an American President addressing European citizens in this manner, since Reagan? Sure, there was Clinton, but he was politically hobbled.
Obama has moved to the center and he's looking for world consensus.
"This is all about fear?"
Really? Oh, please, keep going. This is a gem.
See, I thought the economic collapse was a sobering reflection of the debt caused by our unsustainable monetary expansion, but if it all boils down to being afraid, well then I guess everyone was wrong!
Of course it is about fear. They used it to justify tossing hundreds of billions of tax dollars at corporate criminals, and it is still being used. Oooh, look at Ireland...
Was it ever about more than fear? I can go to my local Best Buy and the flat screen tvs are being carted out the door almost as quickly as last year (and we haven't even seen the rest of the year, yet!). Walmart is making more money then ever. That is NOT what depression looks like.
Mr. Filger, very good analysis, sounds like the new Ireland is like the new Iceland. The only reason we are not there yet is we can still borrow enough to keep us going. How long that will last is the trillion dollar question. President Obama is a good man, but his economic team as well as his foreign policy team can't think outside the box. The economic team is tied to Wall St. and the foreign policy team is tied to the MIC. Nothing new here, the question you have to ask is, is time running out for the USA?
Another factor is that unlike Ireland, which relied heavily on foreign investment, the EU and foreign companies coming in, the US does have a laundry list of industries of its own plus foreign investment. Ireland unfortunately did not. We also have our own currency which is used world-wide. Ireland is on the Euro and has to go the the IMF for help or to Brussels. Very different scenario. However serious the situation gets here, I don't see it mirroring Ireland or, worse, Iceland in any way.
i am saddened to here of the economic downturn in the land of my grandparen
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