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Daily View: Ireland's financial crisis

Clare Spencer | 10:23 UK time, Friday, 1 October 2010

Anglo Irish Bank


Commentators discuss the announcement yesterday that the Republic of Ireland's national deficit this year will be 32% of its GDP after bailing out the country's failing banks.

Patrick Jenkins says in the Financial Times [registration required] that although Ireland was applauded for nationalising banks quickly, its own property crisis compounded problems:

"By acting decisively, so everyone assumed, the country's leaders were solving the problem, handling it better than in the UK and more directly than in Germany.
"But they ignored one crucial difference. The problems of Ireland's banks were the result not only of the international financial crisis and the web of inter-related assets emanating from bad US subprime property lending. The Irish institutions had a vast stock of their own bad property lending; in March 2009 residential mortgage loans peaked at more than €148bn. Years of rampant property speculation, fed by loose lending, have left tracts of Ireland covered with half-finished property that nobody wants and nobody can pay for."

The Irish Times' editorial says that the announcement was made to reassure lenders to the Republic of Ireland but that it will be another two months before we know whether it worked:

"The proof of the pudding will be the December budget which will make real the first round of fiscal tightening that is now becoming the keystone of the State's efforts to retain financial credibility. The ability of a weakened and demoralised Government facing a possible election, as early as the spring to deliver such a budget is the question the markets will now be honing in on. Hopefully the Government will answer it positively because the stakes could not be higher. If Ireland cannot access debt markets at a reasonable rate come the new year, the spectre of a European Union/International Monetary Fund bailout will move a step closer."

Mary Ellen Synon predicts in the Daily Mail that the European Commission will use the Republic of Ireland's present problems as an excuse to "grab more power":

"The EU chiefs not only think that Ireland's crisis will turn into a national death-spiral, they may be secretly hoping it will.
"Brussels knows that the further Ireland and other troubled eurozone countries sink into financial disaster, the greater the excuse the eurocrats can find to achieve one of their long-standing ambitions: to take control of national budgets."

In the Irish Independent Brendan Keenan weighs up the options if lenders decide to pull out of the country:

"One paradox is that if Ireland had to go to the IMF for emergency loans, the conditions imposed would not be much different from those already in the budgetary arithmetic.
"Brian Lenihan or Dominique Strauss Kahn (head of the IMF) would not make much difference. Going to the EU emergency fund -- as would be expected -- could be different. All kinds of conditions are being talked about, including even an enforced increase in Ireland's attractive corporation tax. The truth is that, hard though it may be, the easiest option is to deal with it ourselves."

The Economist's Free Exchange blog asks who recent austerity measures have been punishing:

"Tightening squeezed the Irish economy, to which the busted Irish banking system was heavily exposed. Increased bank losses necessitate bail-outs which boost deficits and lead to calls for more budget cuts. Ireland's 'good behaviour' may ultimately have been penny wise, pound foolish."

In the Independent Hamish McRae says the signs are that the Irish economy is on the mend:

"The turnabout is achingly slow and maintaining political support for a policy that punishes ordinary people for past speculative excess will be hard to sustain. But compared with the situation of Ireland in the early 1990s, or indeed in the 1960s, when the country had a GDP per head of only two-thirds of the UK, the potential for growth is quite positive. The scars of the property crash will remain for many years but the core qualities that created the 'Celtic Tiger' are still there - the skilled workforce, the attractive corporate tax rates and so on - so as global growth picks up, the Irish economy will benefit alongside the rest of us."

In the Guardian Mary Fitzgerald gives her explanation of why there haven't been widespread protests in the Republic of Ireland:

"Much of the answer, I believe, lies in how Ireland's dramatic social and economic transformation over the last 20 years changed the broader national psyche. Consider that Ireland went into the 1990s as one of the poorest, most underdeveloped countries in Europe - and emerged one of the richest. For so long used to being the poor cousin to Britain, its wealthier, more powerful neighbour, suddenly Ireland was a player on the global scene - and this bred a new sense of national confidence. Equally, though, because patriotic pride was so intimately linked to economic success, the sudden downturn was felt, keenly, in terms of collective shame and chastisement - and a fear of a return to the 'bad old days'. It may be this fear, above all else, which accounts for the muted response to the regime's disastrous policy choices."

Links in full

Patrick Jenkins | Financial Times | Homegrown flaws in Dublin's rush to act
Irish Times | The final bill for the banks
Mary Ellen Synon | Daily Mail | A drunken Premier playing right into the hands of the EU
Brendan Keenan | Irish Independent | Facing truth can set you free, but at what price?
Economist | The money pit
Hamish McRae | Independent | Don't give up on the Celtic Tiger just yet
Mary Fitzgerald | Guardian | Ireland's apathy



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