Viewpoint: Ireland's robust economy knocked off course

By Marc Coleman
Irish economics commentator

image captionVanderlei de Lima of Brazil was attacked in the closing stages of the Athens Olympics

Watching the ongoing coverage of Ireland's bail-out crisis, I now know how Vanderlei de Lima must have felt.

You don't remember Vanderlei de Lima?

His is a story that captures the Irish Republic's current situation as well as any other. And there is an Irishman involved too.

The place was Athens, 29 August 2004, and the Brazilian de Lima was leading the field in the Olympic marathon.

After a gruelling 35km (22 miles), de Lima had just 5km left to run with an excellent chance of winning when, bizarrely and out of nowhere, an eccentric and defrocked priest by the name of Father Niall Horan ran out from the crowds and pushed de Lima into the spectators.

The event gained notoriety around the world and Horan emerged as a contestant on Britain's Got Talent last year.

De Lima recovered and went on to finish the marathon, coming third instead of first.

For the Irish economy, the past two years have been a combination of a marathon and a gruelling assault course.

Getting to grips

Of course, the government has made mistakes.

But, compared with other governments, most notably Gordon Brown's Labour government, Ireland started getting to grips with its budgetary crisis early, implementing two emergency budgets in October 2008 and April 2009, followed by a budget last December in which public pay was cut.

image captionIrish Finance Minister Brian Lenihan delivered two emergency budgets in 2008 and 2009

By a magnitude of 5% of GDP, Ireland has achieved more correction in its budget, in relative terms, than most EU countries put together.

Our debt level is, when you account for a pensions reserve fund, actually still lower than Britain's and this despite a decade of massive infrastructure investment.

Sadly, speculation - justified but overdone - that Ireland's bank bail-out costs would escalate beyond the state's ability to meet them has knocked us off balance.

Badly affected by a property bubble that burst, the estimated cost has been regarded by bond markets as a sign of the state of our economy and a burden that the government cannot bear.

It is no such thing.

Sure, the bail-out is a drag on our fiscal future. But its current estimate - which reports say has been borne out by scrutiny from EU and ECB officials - is around 35bn euros (£30bn; $47bn).

If spread over 10 years - and even if this rises - the annual cost is at or below half of what we spent each year on infrastructure investment.

Painful yes. Fatal no.

Healthy surpluses

As for the current state of the economy - the majority not constituted by the property market - exports rose by 7.8% in August, manufacturing output was up 12% in September, unemployment fell for the second month in a row in October and tax revenues overshot expectations in the same month.

image captionRemarks by the German chancellor served to increase borrowing costs for the Irish Republic

And, unlike Greece, Portugal and Spain, Ireland is heading for healthy balance of payments surpluses in coming years.

And did I mention that US investment in Ireland exceeds US investment in Brazil, Russia, India and China put together?

Unfortunately the Irish government has, as George W Bush might say, "misunderestimated" the early extent of bank losses, allowing doubt to emerge about its full extent.

Nor has the German government helped a whole bunch by appearing to threaten holders of sovereign bonds with "haircuts" [asset value reductions], another Bush-style miscommunication only clarified after last Friday's G20 summit.


Not that the media have been a great help either.

image captionMedia have conveyed an image "totally at odds" with Ireland's reality

Images of people riding on donkeys or begging, together with one-sided dramatised narratives about young people leaving the country (our population has continued to grow well into the recession) may boost viewership, listenership and readership figures.

But they convey an image of Ireland totally at odds with the reality of a country that last week was voted by the UN human development index as the world's 5th most desirable place to live.

The UK was - sorry to point this out - 26th. Our GDP per capita remains 30% above the EU average and well above Scotland, Wales and Northern Ireland.

And, unlike France, we are a country where - without riots - we can create agreement between our political parties on the need to get our house in order.

Where do we go from here?

While government and media have played a role, Ireland's current crisis is fundamentally made up of two interacting components - a fiscal crisis and a banking crisis.

We were three weeks away from solving the former by ourselves when doubts about the latter - the proverbial "Father Niall Horan" in this story - hit us for six.


Resorting to a bail-out in relation to our banking crisis might look like a smart move: big sister Angela facing down banks that her little Irish brother is too weak to.

But the damage to Ireland's reputation and the euro would be humbling, at the very least.

An excessive bail-out - one targeted at both our public debt crisis and banking crisis - could be more than humbling.

For a nation that had run so long and so hard to win this race, it would be humiliating.

A year ago, such an event would not have brought Ireland closer to the UK: then-Scottish Secretary Jim Murphy's reference to Ireland as part of an "arc of insolvency" had created too much bad blood.

David Cameron's government is a different affair.

Ireland will never leave the euro (at least as long as it exists).

But this week's events could result in Ireland taking a more cautious view of Europe, and a more positive view of Britain, in the future.

Marc Coleman is Economics Editor at Newstalk 106-108FM and Economics columnist with The Sunday Independent

Your comments

Marc, I read with interest your article about the Irish economy. It's good to see some balanced reporting. My family are Irish and we returned from England to Dublin in 1979. I was fortunate to receive an excellent education in a working class area of Dublin. Our family was forced to return to England in 1983 because of another recession - we are a nation of recessions. This time things are very different. Personal debt is at record levels and the Irish have got ahead of themselves. I don't know how many times I have returned to Ireland and everyone has been keen to tell me how much the house is worth.

I am a qualified accountant and professional landlord. I have been trained to value assets, and I for one have never been able to stack up these ridiculous valuations. Irish property I believe is still at least 50% overvalued in terms of rental return. This recession is different: most of the country will be in negative equity for the next 10 to 15 years. In my opinion Ireland should have defaulted and left the euro. It will probably still have to. I'm very pro-euro, it's irresponsible lending that is the problem, not the currency itself. Robert Long, Lindfield, West Sussex, UK

A little bit of insight. Too many people are getting carried away with this financial crisis, and here we are spread all over the international news as yet another Greece. Problem is, this real headache can't be explained in a headline, it can't be understood in a paragraph, most people won't bother looking further than that in the first place. Who decides how to portray Ireland in the media? Why do all the crisis articles portray homeless men, empty houses, bankrupt shops and devastated punters?

What sort of image of our economy does that give to the murky world of headline-savvy financial market spin doctors? What justice is there in sensationalising a sensitive and painful recovery towards fiscal rectitude? You can't just come in and take pictures of the people's recession so you can illustrate the effects of Ireland having a whopping 9% borrowing cost or crazy debt levels. The markets' imperious stances are making this ridiculous bail-out a necessity. Don't you financial correspondents get it? Stop panicking and we might actually get somewhere. You're upsetting our boss, The Market. Brendan Culley, Northern Ireland

To estimate the cost of the Irish bank bail-out at "around 35bn euros" is to grossly underestimate the problem. To suggest that talented young people are not leaving the country in increasing numbers is at odds with the reality of the country I live in. Those who conceptualised the state as a corporation - Ireland Inc - are still in charge despite their breach of fiduciary duty. If it were a corporation and if that corporation wasn't Irish, they'd be in jail. Not a single Irish banker has yet been prosecuted. To attack those who seek to tell the truth or suggest they're unpatriotic is the mark of a banana republic. At least we still produce good fiction writers. Michael McNamara, Co. Clare, Ireland

Thank you Mr Coleman. For an Irish expat living abroad the media coverage of my home country's current situation has left me worried and apprehensive for the well-being of those close to me still at home. I constantly come up against those who underestimate Ireland and the Irish and I am happy to hear your realistic real-time account of where the Irish economy stands. We have a lot to blame ourselves for: greed, ignorance and downright stupidity but we are resilient and if the right people step up, I am sure Ireland will be in a good place again before too long. Kieran Hallahan, Tokyo, Japan

Sadly Mr Coleman seems as out of touch as our politicians. Yes the media dramatise, however as a post-graduate student I have seen at least 30% of my classmates from the previous year leave the country. Over the past two years I have seen countless friends lose their jobs and in 25 years I have never witnessed the amount of begging that goes on in Dublin city centre - it's literally on every single corner. The world's fifth most desirable place to live? For bankers and politicians most definitely! Sean, Dublin, Ireland

Great piece Marc, good to see somebody else noticed the ridiculous over - dramatisation of the situation in Ireland in the international media, especially here on the BBC website. A few days ago a headline story about the pressure on the government to accept a bail-out contained a random picture of someone begging on the street as if to try to paint a picture of a struggling and impoverished country. Everyone in the country knows we are in an economic mess and we should expect some tough measures to be announced in December, but make no mistake: as Marc pointed out, the economy is down but far from dying. James, Drogheda, Ireland

Another Irishman who doesn't see it coming. What a (Greek) tragedy. Lukas, London, UK

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