The EU with Ireland

To find a way out of a serious economic crisis

Now that the IMF and the EU are in Ireland telling us how we must manage our economic affairs the feeling among the public is not one of anger, but of relief. People know that very tough times are ahead but they believe that our new economic managers will be far more competent than the ones who have led this country into such a severe recession. What anger there is, is directed not at the international team currently in Ireland, but at the Government and the banks, with a certain amount also being directed at the public sector unions which hugely inflated public sector pay. Ireland had a genuine economic boom from around the mid-1990s until roughly 2002/3. It was built on high tech multinational companies locating their businesses in Ireland to take advantage of, among other things, our low rate of corporation tax, on an expanding reasonably low-paid , well educated workforce, and on deregulation. It was also built on a property boom that from around 2002 turned into a bubble of almost unprecedented size. Our banks uncritically and recklessly loaned tens of billions of euro to property developers and mortgage-holders alike. German and British banks in particular loaned vast sums to our banks so they could lend to the property developers and as a result the fate of some of the most important banks in Europe became tied to the fate of our banks. But the property boom turned into a bubble as the developers began to build hotels, and offices and housing estates that no-one really wanted because the demand for property had already been well and truly met. The result is that Ireland is now full of ‘ghost’ hotels, offices and estates that may never be bought or rented. The loans used to build these properties will not be repaid, at least not in full, and the banks have had to absorb huge losses as a result. However, our Government made a decision that those who lent to our banks would lose no money as a result of the property crash, and therefore they guaranteed both the depositors and the bond-holders. What Government has said is that the Irish taxpayers will ensure the lenders are repaid. But the Irish State is small, and its capacity to repay all the lenders is limited and therefore the markets began to doubt that the debts could be repaid in full. Therefore they began to drive up our interest rates. They also looked on, worried, as our national debt climbed and climbed. Even with the spending cuts and tax increases introduced since 2008 when the property bubble burst, our budget deficit this year is 14 percent when day to day Government spending only is taken into account, and it is 32 percent when we add the Government money poured into our banks this year to keep them afloat and keep our guarantee. The interest rate we are being charged by the markets is now so high that neither our banks nor the State can borrow money overseas and the result is that we have now been forced to turn to the IMF and the EU. Only they will loan us money. They urged us to apply for a bail-out because they are trying to contain a crisis that is spreading to Portugal and Spain, and to protect the European banks who loaned money to the Irish banks. Even with the IMF and the EU now behind us, Ireland may yet have to default on some of its loans because the mountain of debt is so big and because the IMF and the EU may find that they are unable to rescue all the countries in Europe that need rescuing, including Italy. What is being demanded of us now is that we cut the budget deficit to 3 percent of GDP by 2014. We are aiming to cut spending and raise taxes to the tune of €15 billion over that period. Every sector, including the extremely well-paid public sector, is trying to ensure someone else feels most of the pain. Ireland is a country that has lost faith in its leaders. A new Government will be in office early in the new year now that the present Government led by Brian Cowen has said it will go to the country after the budget is passed – if it is passed – on December 7 and other relevant pieces of legislation are changed in January and/or February. The new Government will consist of Fine Gael and Labour, but in truth people won’t have much faith in them either because neither of these parties tried to stop the property bubble reaching ridiculous proportions. This is why we are relieved the IMF and the EU are in Ireland and it is why any protests that take place will not be violent like those that occurred in Greece.

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