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A friend in need

Mark Devenport | 10:36 UK time, Monday, 22 November 2010

The old republican maxim used to be that "England's difficulty is Ireland's opportunity". Changed times, now the British Chancellor sees Ireland's difficulty as an opportunity to help - in George Osborne's words - "a friend in need".

Of course it's not just an act of charity. The British and Irish economies are heavily interconnected in terms of trade and bank loans. A complete collapse south of the border might make it easier to get a parking space at a Newry shopping centre and cause some unionists to gloat about the "failed entity" south of the border. But the impact in terms of diminished takings and job losses here would soon set that into context.

In London some euro sceptics - like the Conservative John Redwood - have argued that Britain should not participate in any rescue package. That's been echoed by the TUV leader Jim Allister who last week described the prospect of the UK playing a part as "monstrous and wrong".

However at Stormont it's just not nationalists who appear convinced that George Osborne has little choice about taking part in the rescue. Yesterday on "Inside Politics" for example (speaking prior to the confirmation of the multi billion Euro bail out) the DUP Finance Minister Sammy Wilson told me Ireland was "reaping the effects of having joined the Euro and lost its fiscal and monetary independence". But he added that he didn't take any pleasure in what was happening and didn't think " any of us want to see a weak economy in the Republic". Mr Wilson pointed to the level of interdependence between Northern Ireland and the south adding that he was concerned that the continuing problems being revealed within the balance sheets of the Dublin banks could have a negative impact on the liquidity available to firms here.

Not everyone, of course, agrees with Messrs Wilson, Allister and the Daily Telegraph that the Euro is to blame for Ireland's difficulty. In yesterday's Observer Will Hutton blamed the "duplicity and lack of grip" of the Irish government and the fact that "Dublin followed Edinburgh, Reykjavik and Dubai in trying to exploit unregulated global finance and become an international financial centre." He argued that instead of being the problem the Euro should be part of the solution.

I am not going to pretend to be a financial expert. With a layman's eye, it seems that membership of the Euro has robbed Ireland of one lever for managing its crisis. But the the roots of the difficulty lie not just in the cheap credit made possible by Euro membership, but also a lack of bank regulation (a problem common to other countries). Whilst celebrating the success of the "Celtic Tiger" the authorities in Dublin failed to discern when a boom fuelled by healthy export performance tipped over into a bubble of unsustainable property speculation.

Last week, talking to Gerry Adams about his move to Louth, I asked him if he had been in power during the 2008 financial crisis, would he have let the banks go to the wall. He answered "yes", adding that he would burn the bonds issued to investors.

At some point I'd like to see a good counterfactual piece about what would have happened if the Irish government hadn't come to the banks' aid in 2008. In the Irish Independent back in September Thomas Molloy argued that it was "possible the country would have witnessed 'Mad max' scenes for several days as cash shortages forced people to barter and then loot supermarkets and other sources of food."

The failure of Irish ministers to tell the truth in recent days may have seemed mildly irritating (just last weekend they were blaming the BBC for peddling "fiction" about the bail out). But it could be excused as a tactical manouevre in the midst of high stakes financial negotiations. The far bigger questions concern the strategic decisions made in 2008 and in previous years and whether the alternative courses of action canvassed by opposition politicians would have averted this crisis or merely accelerated events.

Comments

  • 1. At 1:14pm on 22 Nov 2010, The_Oncoming_Storm wrote:

    Being in the Euro cost Ireland control of interest rates and allowed easy credit to flood the economy but there were still plenty of things that the government could have done to cool the boom such as property taxes, planning controls and bank regulation. Had these measures been implemented then the downturn would probably not have been the catastrophic implosion we're witnessing.

    The reason why none of these other options were implemented was simply because Fianna Fail were in hock to the developers.

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  • 2. At 2:59pm on 22 Nov 2010, DisgustedinDERRY wrote:

    Mark,

    Have you seen this video of Sinn Féin TD Aengus Ó Snodaigh being assaulted by Gardaí???

    It's good to see common sense from Minister Wilson. The knock on effect from one part of Ireland to the other is a fact we all have to accept!!!


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  • 3. At 6:32pm on 22 Nov 2010, broly wrote:

    "The failure of Irish ministers to tell the truth in recent days may have seemed mildly irritating (just last weekend they were blaming the BBC for peddling "fiction" about the bail out)."

    -------------------------------------------------------------------------

    It was fiction. The government were merely discussing the possibility of a bailout if the worst came to the worst. It was the reporting of this as a "bailout" by the BBC and other news organisations that turned this fiction into reality. The only failure to tell the truth here lies with the BBC.

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  • 4. At 09:49am on 23 Nov 2010, Chris London wrote:

    Posts so far here have shown how little people know about the economy of Ireland. I watch Alasdair McDonnell talk on the BBC saying that intrinsically the South was financially sound and the economy was functioning well.

    Well if this is functioning well I don't know what everyone else around the world is worrying about. For at best they have enough to survive for four to six months before they start to default on loans and cant pay their own wage bills. So by April next at the latest the South would go into meltdown and coupled with the fact that their banking system is bankrupt they have no room to maneuver.

    The model down south (Celtic Tiger) was built on sand for they attracted commerce from abroad by ultra low corporation tax which is fine in the short term but is not sustainable in the medium to long term. For as is happening now their European partners are ganging up on them as they see this as an unfair practice. Now if as is likely they will be forced to raise the rate to the EU average it has to be questioned how many will want to stay when they are having to pay their own staff over the odds to compensate for the extreme tax regime if they are not benefiting for artificially low corporation tax. The inward investment would surly also dry up as the US See's the South as a way to get access into the EU on the cheap. Strangely the North may well benefit from such a move.

    Next we have a property market that was aloud to run out of control which in turn fueled the Celtic Tiger Myth. Which in turn fueled a Public sector boom, which in turn fueled a welfare system that was over generous to say the least.

    Unfortunately all their chickens have come home to roost at the same time. All are comparable;
    The banks lent recklessly,
    Politicians let it all just to continue with the never had it so good message,
    And the population lived the good life.

    Now they have gone from having the best standard of life in the western world to having the largest personal debt. It is now running at about 190% of disposable income. So in other words they would have to work for nothing and not spend a penny for more than two years just to pay off the debt. Then we add the public debt and the ship starts to take on water.

    Now there are many who are jumping ship and emigration is the call of the day. Ireland is the only country in Europe who's population has decreased in the last year. In a report last week it is now estimated that there is about 500,000 empty properties. With a population of around 4.5 million it will take a colossal population growth to take up on these properties. It is estimated that no new houses would be needed to be built for between 8 to 10 years to take up the slack. And prices, well the same report estimated that it could be a quarter of a century before they reach parity with the 2006 level.

    Now there are five stages of grief;
    1.Denial
    2.Anger
    3.Bargaining
    4.Depression
    5.Acceptance

    Many here are still at stage one, some are reaching stage two and some of the politicans are having to be at stage three.

    It is a comment on some of our politicans that they are stage one and refuse to go any further. For in the past they were able to bury their heads in the sand and wait till things where taken care for them. Now they have entered the real world and have to stand on their own two feet means that they can't do their ostrich immpersion but they are still trying..... yes very trying.....

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  • 5. At 7:04pm on 23 Nov 2010, akrocratt wrote:

    And the old Tory maxim could have been Ireland's difficulty is Britain's opportunity, considering the British policy of partition has served to cripple what has always been a single island economy. There isn't even a single currency on the island, for heaven's sake. Surely this point alone can demonstrate to even the most economically illiterate Irish person that the underlying fundamental flaw in relation to Ireland developing a workable economy, is that the island is split into two seperate political jurastictions.

    Middle-class unionists may be able to count on a hefty compensation from Westminster for this neighbourly sabotage but the Irish people generally are being mugged off and many of them need to get their heads out of the sand and use their right of self-determination. There's no point having it if you're not prepared to come out from under the spell of big money and use it. Greed and a lack of genuine patriotism is the real cause of the crisis. No Irish person ever fought for anything other than a 32 county republic, the ultimate answer to all our political, economic and social problems.

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  • 6. At 9:01pm on 23 Nov 2010, eyeswideopen1 wrote:

    "The failure of Irish ministers to tell the truth in recent days may have seemed mildly irritating" but may have been the tipping point at which the people of the republic lever from power those whose who let the economy crumble and let the burocrats of brussels take control.
    Reports of property tax of about 500 euros a home, a cut to the minimum wage ,cuts in public spending and maybe worse of all a rise in corporation tax reduce the countries ability to win and retain investment. What can the people do? The greens seem to be playing smart by trying to distance themselves from cuts but being part and parcel of them. It could also be true that Fine Gael banking on a passed budget with Fianna Fáil taking the blame in the election, Fine Gael sailing into Government and then fully implementing the self-same budget. Labours Eamon Gilmore has already said they won,t reverse cuts in any budget.


    Sinn Fein will make electoral gains south of the border because so many ordinary people are disillusioned with the established parties and appalled at being made to pay for the financial mismanagement of their country.
    We need to pool resources in health, agriculture, tourism, transport, the environment and whatever other common interests we have, much better than we have done to date. Rther than seeing this as a crisis to ireland republicans should se it as a challenge and under the leadership of Adams take control of goverment.

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  • 7. At 10:25pm on 23 Nov 2010, DisgustedinDERRY wrote:

    Mark

    Have you read the statement by David Vance regarding the £7bn loan:

    "People across the United Kingdom will be appalled to hear that our government is to contribute around £7bn towards propping up the failed economic and political entity which is the Irish Republic.

    "HM Government simply does not have £7bn in loose change to throw into the Irish begging bowl! This has been made abundantly clear following the recent cuts and the impending threat of yet more.

    "The UK had the good sense to stay out of the euro and should not, now, be paying for the mistakes of those who joined.
    "

    What a fool he is!!!

    It is estimated that each citizen in the South spends €3000 on UK goods annually. If they cannot access cash, they cannot spend it. Given that Ireland has a population of around 6 million, 4.5 million who live in the South, that works out at €13.5bn annual loss.

    Would that be sectarian/racist politics or economic illiteracy???

    P.S. Is it any wonder Vance can't even get 6% of the votes in East Belfast. We are lucky that the people reject the failed policies of Vance and Allister!!!

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  • 8. At 09:26am on 24 Nov 2010, Chris London wrote:

    7. At 10:25pm on 23 Nov 2010, DisgustedinDERRY wrote:
    =========================================================================
    Economics may not be your strong point for even if the UK gives the South the £7 billion loan it will not ease up liquidity. It will just be swallowed up in the central pot. So if the £3,000 spend is at risk the loan would not make it any less at risk. For a some of £30 billion is now being talked about to shore up their public finances and even then the loan repayments are going to cripple the country for years to come.

    Unless the Euro can be devalued the Irish economy is doomed for it is built on low corporation tax which is not sustainable in the medium to long term. For the counterbalance to low corporation tax is higher personal taxation, which is now coming to fruition.

    Unfortunately the South has had it moment in the sun and to quote Blackadder they have "Seen it, pinched it, spent it!"

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  • 9. At 10:17am on 24 Nov 2010, The_Oncoming_Storm wrote:

    Vance really should be preserved for the Nation! He obviously fails to understand that Britain can borrow the £7 billion from the bond markets at 3% interest, lend it to Ireland at 5%, when Ireland repays it's loan Britain then pays the bond dealers back at the lower interest rate and pockets the difference! The loan helps to stabilise the economy of one of Britain's major export markets helping to maintain British jobs and therefore keeping government revenues up. So therefore everbody wins!!

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  • 10. At 11:26am on 24 Nov 2010, Chris London wrote:

    6. At 9:01pm on 23 Nov 2010, eyeswideopen1 wrote:
    Reports of property tax of about 500 euros a home, a cut to the minimum wage ,cuts in public spending and maybe worse of all a rise in corporation tax reduce the countries ability to win and retain investment.
    =========================================================================
    Firstly can I say that I would not wish what the South is going through on my worst enemy. However as one Irish commentator said "their chickens have come home to roost". The ultra low corporation tax was and is never going to be the panacea of life, for it is unsustainable. The main reason for this is that the economy bears costs when a company operates and those costs will have to be paid for by someone. The Souths model was that they should be paid for by the population.
    Secondly the companies that come are of questionable ethics for they have only come because of the finacail incentive. Their loyalty can be bought by the cheapest bidder. Which is why a number of companies have pulled up sticks to go to the Eastern Block member states. And now that operating cost have increased even more are thinking of jumping ship. There is also the fact that a number of companies only moved their head quaters over to Ireland with a handful of staff while leaving the bulk else where so benefiting for the unrealistic corporation tax level while minimising the operating costs. Such has been the conundrum of many a development zone with grants available to entice inward investment. The North is a prime example of attracting companies with large grants, rate free premises Etc only to loose them once the support stops for they just move on to the next lot of free money. Because of the life style the south took up during the period of boom they overstretched themselves and as I have said before All are comparable;
    The banks lent recklessly,
    Politicians let it all just to continue with the never had it so good message,
    And the population lived too much of the good life.

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  • 11. At 2:36pm on 24 Nov 2010, DisgustedinDERRY wrote:

    9. JPSLotus79
    "Vance really should be preserved for the Nation!"

    I could think of a few other uses for Mr. Vance!!!

    8. Chris London
    "Economics may not be your strong point"

    I was merely making a point. Vance can't see past his sectarianism to realise that helping Ireland helps the UK. UK banks are owed $149 billion by Irish banks. The bail out is protecting UK interests in Ireland!!!

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  • 12. At 4:50pm on 24 Nov 2010, TheStrawbs wrote:

    akrocratt wrote:

    "considering the British policy of partition has served to cripple what has always been a single island economy."

    Tripe! Partition didn't cause the meltdown that is now in full flow. Mismanagement and corruption did. A 32-country ireland would be little different economically.

    Republicans now have an impossible sales job to do, to convince unionists that a united ireland is sustainable, never mind desirable. There seems to be a strategy from them to talk about "economies of scale" to sell the un-sellable.

    "There isn't even a single currency on the island, for heaven's sake. Surely this point alone can demonstrate to even the most economically illiterate Irish person that the underlying fundamental flaw in relation to Ireland developing a workable economy, is that the island is split into two seperate political jurastictions."

    There was a single currency - the pound - on the island until C. J. Haughey split the punt from the pound. I suppose that is the fault of the UK too?

    WRT "developing a workable economy", the island being split is not the problem. The problem is the island (or most of it) being badly managed by "cure hoores".

    There are genuine reasons why some in NI (including protestants) would be better off in the roi, but don't kid yourself - the roi economy is not one of them.

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  • 13. At 9:27pm on 24 Nov 2010, eyeswideopen1 wrote:

    Whatever the state of the economy south of the island we must remember that the Northern Ireland act 1998 states the northern secetary will hold a poll if it appears likely to him that a majority of those voting would express a wish that the north should break links with britian and unite.
    In the event that a census revealed a Catholic majority in Northern Ireland, then the Northern Secretary would certainly come under pressure to hold a referendum within a year or two of the results. Unionissts might campaign for the continued subvention of the 5Bn to the north and this would be welcomed as settlement for the military occupation of the north.

    South of the border the working class people look for real proven leadership. The poorest and arguably the most isolated constituency in Ireland is expected to deliver another blow to the country's beleaguered coalition government when Sinn feins Pearse Doherty takes the seat of Donegal South West. This will be the start of politics south of the border being radicalised. Sinn Feins budget submission has three key components, it proposed shifting the burden of taxation from the poor to the rich in a series of measures including higher income and wealth taxes for higher earners. It outlined how wasteful spending can be eliminated; and outlined a €7.5bn government investment in people, services and infrastructure. A stop must be made to the goverments shoring up of bond holders whilst heading up a crusade of cuts to ordinary peoples wages.

    eyes wide open folks and remember Cha bhi fios aire math an tobair gus an tràigh e.

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  • 14. At 9:46pm on 24 Nov 2010, DisgustedinDERRY wrote:

    13. eyeswideopen1

    The well has been licked dry by greedy planners, developers and politicians!!!

    Pearse Doherty for Donegal!!!

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  • 15. At 10:53pm on 24 Nov 2010, Jimmy Cricket wrote:

    The real loss here is the dream of a 32 County Socialist Republic. We are now forever in debt to institutions and members of a higher government, who's intentions are questionable and who have connections to those who are now engaged in conflicts all around the world to take control of various countries natural resourses, opening up markets for their sponsors in big buisness, all the while carring the flag of democracy. We are now slaves to the global elite who dont give two fiddlers about slaughtering men women and children in their quest for profit and power.

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  • 16. At 08:56am on 25 Nov 2010, Chris London wrote:

    15. At 10:53pm on 24 Nov 2010, Jimmy Cricket wrote:
    The real loss here is the dream of a 32 County Socialist Republic.
    =========================================================================
    A Republic possibly a Socialist Republic, I don't think so. You just have to look at how the population in the South reacted when there was money around. The majority milked the system for all it was worth and many still think it can continue. They lived the good life and I can't see many wanting to change to a life of permanent austerity. For I have yet to see a truly Socialist country where all are treated equally. I have had the privilege to travel extensively and visited many Socialist countries. These range from Russia, China, Cuba through to Venezuela and Nicaragua. All have one thing in common, they have a bigger class divide than we have ever had. They tend to be run by a dynasty which through time either becomes corrupt or is overthrown by another dynasty in waiting. Or it becomes so corrupt that it is overthrown by a corupt dynasty in waiting.

    To quote Animal Farm "All animals are equal, but some animals are more equal than others." George Orwell said it all with this one statement. Or "The road to hell is paved with good intentions" as Saint Bernard of Clairvaux is to have reportedly said.

    For I truly believe that if we could live in a;
    Communist,
    Socialist,
    or even;
    Capitalist state then it would a Utopia. However there is one thing that will never let this happen, PEOPLE.

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  • 17. At 1:34pm on 25 Nov 2010, DisgustedinDERRY wrote:

    16. Chris London
    "The majority milked the system"

    Again, very vague in your estimation. Your dislike of anything Irish shines like the sun in Spain!!!

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  • 18. At 1:43pm on 25 Nov 2010, DisgustedinDERRY wrote:

    16. Chris London
    "there is one thing that will never let this happen"

    Greed!!!

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  • 19. At 7:18pm on 25 Nov 2010, Chris London wrote:

    17. At 1:34pm on 25 Nov 2010, DisgustedinDERRY wrote:
    Again, very vague in your estimation. Your dislike of anything Irish shines like the sun in Spain!!!
    =========================================================================
    Personal debt in the South is the highest in the developed world. That does not just happen by accident people as you said and I think I did just get greedy.

    As for a dislike of anything Irish, I live in Ireland, my wife is Irish, most of my close friends are Irish. So with the exception of my wife, only joking if she is reading this, I think I am pretty happy with the Irish and most things Irish. There are certain things I dislike but that is only on a personal level and not on a national level.

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  • 20. At 8:36pm on 25 Nov 2010, eyeswideopen1 wrote:

    George Orwell also said "Speaking the Truth in times of universal deceit is a revolutionary act". The same truth that in recent days seemed to have been in limited supply to the Irish people from the same government that acted as agents for the predatory international banks and the speculators who gambled billions in private deals with property developers and bankers in Ireland and now want the Irish working class to pay for these gambles which went wrong. To say socialism is at times is run by a dynasty that in time becomes corrupt is vague in the extreme.
    Reformists, such as Sinn Fein, believe that a socialist system can be achieved by reforming capitalism. Capitalism ultimately fails because it acts in the interests of capitalist business. Capitalism is the only morally valid socio, political system that allows people to act in their self-interest with no social conscience other than an attitude of insensitivity toward injustice and problems in society.

    eyes wide open and off your knees people.

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  • 21. At 08:43am on 26 Nov 2010, Chris London wrote:

    20. At 8:36pm on 25 Nov 2010, eyeswideopen1 wrote:
    To say socialism is at times is run by a dynasty that in time becomes corrupt is vague in the extreme.
    =========================================================================
    It is very easy for me to answer this one;
    Cuba - First hand experience of systematic corruption which is state sponsored. Also there is a very strong two tier class system in place, with the ruling classes living well while the average man in the street is often living hand to mouth.
    Russia - First hand experience of corruption which is orchestrated by those in senior governmental positions, although it has improved in resent years as far as the state is concerned but that void is being taken over by others, the new dynasty. The class divide is so evident every where and is as blatant as having different lanes which only "party" members could drive in.
    China - First hand experience of corruption, bribes are every day practice and you have to pay if you want to get anything done. And who do you have to pay but "Party" officials / members. However I have seen an improvement in resent years.

    I could go on but I feel that these examples are sufficient.

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  • 22. At 8:35pm on 26 Nov 2010, eyeswideopen1 wrote:

    After ww2 Mc Carthyism swept America and many thousands of Americans were accused of being communists or communist sympathizers and became the subject of aggressive investigations and questioning before government. The primary targets of such suspicions were government employees. Many Americans were prosecuted. later the house committee on un-american activities was brought into being and in 1975 its functions were transferred to the House Judiciary Committee and stopped being a high powered quango and was given extensive powers. All this to stop the the emergence of radical socialism. Today the usa and her allies use fear and droconian laws to bring fear to her citizens. Note the introduction of the colour coded state of alert. It would seem the american dream has nightmare qualities brought to the people in technicolour with all the subtlety of waterboarding and we are told capitalism is the only way? """""Tomorrow Britian and Ireland and the fall of capitalism""""""

    eyes wide open and watch this space.

    Eyes wide open

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  • 23. At 1:55pm on 29 Nov 2010, PaulR wrote:

    7. At 10:25pm on 23 Nov 2010, DisgustedinDERRY wrote:
    ...
    It is estimated that each citizen in the South spends €3000 on UK goods annually. If they cannot access cash, they cannot spend it. Given that Ireland has a population of around 6 million, 4.5 million who live in the South, that works out at €13.5bn annual loss.

    Don't underestimate the size of the Irish deficit as a result of the bank bailout. Current estimates are of a €7bn loan from the UK; assuming the effect of this is to retain that €13.5bn, the UK will have made a 100% return on a half-year's investment. Given the risk involved (since Ireland will be taking austerity measures and hence reducing the spending power of its citizens, and it may well end up defaulting on that loan at the end of the day anyway), it isn't obvious that it's a sound economic move.

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