Ireland – its all goood…its alll gooooodddd

keep-calm-and-drink-the-kool-aidNo, really it is apparently all good. So sez a report by Euroweek. Mind you this is sponsored by a bunch of banks with significant exposure to Irish debt/bonds/interests so they are hardly likely to say “RUN RUN FOR THE HILLS” even if that were (which it probably isnt) warranted. Still. The centerpiece is a transcript of a roundtable on ireland. Whats astounding is NOT A SINGLE contrarian voice is to be heard. The herd thunders on. Feel free to read. There are some gems.

Some I particularly like :

 

if you offered the Spanish or the Greeks an
unemployment rate of 13.7%, they’d bite your hand
off, wouldn’t they

……

Public sector pay will be further reduced.

……

“given  healthy nominal GDP growth of 3%-4%
and interest rates of 4%-5%, the debt
trajectory looks sustainable.” [ and a puppy..my edit]

……

the increase in the population over the last 25 years means that as a percentage the gross number of emigrants is still down on the late 1980s. the second is ..ryanair …, which is allowing people to fly around the globe at a fraction of what it cost to do so in the 1980s.

……..

The economic situation in Ireland  has been quite stable over the last couple of years

……….

still, lets not be too negative. …

 

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5 thoughts on “Ireland – its all goood…its alll gooooodddd

  1. Brian Mulligan

    It had occurred to me that people are saying this is worse than the eighties but this does not quite ring true with my memories. We had about 18% unemployment then and the size of the workforce was smaller. Any economists around here know how the dependency ratio compares with then? I remember that was when I first heard that countries did not have to pay back debts – just service them. Maybe we should do a piece on how things are better than the eighties. We have better roads and buildings. We got the phone off Posts and Telegraphs and got the Internet (imagine if we were depending on p7t to get the Internet). Cheer up folks.

    Reply
  2. Pale Rider

    Yes Brian, I had reflected on that point too. My conclusions were in fact diametrically opposed to yours. First, there was no personal debt in the 80’s, at least compared to today. Wages and costs were well below the EU average allowing considerable growth potential in the catch up that happened in the 90’s. Of course banks simply pushed interest rates up to keep themselves nicely self funded, try that today with a quarter of all mortgages in arrears……, the eighties economy was a lot worse that todays so called austerity, the credit binge continues and Ireland would be a basket case without the bailout program. With little growth prospect and only one way for interest rates to go a default (by its various names) is inevitable, it many ways its already started (promissory note, rescheduling of Irish debt profile). Of course the real fun will start once we achieve nirvana and re-enter the markets….then our nostalgia for the 80’s will be warranted

    Reply
  3. Brian Mulligan

    Hi Pale. I presume that you are suggesting that between private and public debt we won’t be able to afford to “service” it and we will default once we figure that out. Forgive my amateur understanding of economics, but can you describe the “real fun” that will start when we re-enter the markets in a little more detail. I had presumed that re-entering the markets was the real test of whether we could actually service our debts. By the way, other than the minimum wage, I thought that our wages and costs were dropping somewhat. Not enough?

    Reply
  4. Pale Rider

    Hi Brian, I am certainly no expert, however, it does surprise and concern me that so many of us seem to expect this to blow over. Being in an IMF program is serious, it has implications for the countries involved. Argentina is used as a common example there are many others, typically few western countries end up needing financing program’s except for wars etc. At the moment much of the gov debt is financed by the ECB which charge a very low interest rate, this is helping to reduce the funding costs of our debts and also helping to improve the profitability of the banks for a few reasons. Gov debt is usually issued as bonds and these have maturity dates by which they must be paid back, rather than pay them back the state reissues more bonds as old ones mature at an interest rate reflecting the markets view of the risk at that time. Many bonds are due to mature in the next few years, many billions of national debt will need to refinanced by ‘the markets’ it is extremely likely that Interest rates on Irish debt will rise by comparison to older bond interest rates. An increase in the cost of borrowing affects the entire economy. The budget deficit will increase with the increase in debt servicing costs and the banks will pay more for their funding which means they will need to charge us more. I don’t expect a return to 80’s interest rates but if we don’t reduce our national spending on wages, services etc then markets will consider us at a greater risk of not paying them back (default) and price in a premium.

    Anyway the point is that the country is still increasing its debts and with little growth is finding it ever more difficult to pay the increasing interest bill. Much of the private debt is already in arrears. Even a small increase in interest rates will increase the need to reduce gov spending further – it’s a vicious circle

    Irish labour costs were below the UK from 1987 to 1998, after 5 years of recession our costs are still higher than UK in the period 1999 to 2012. Yes progress has been made

    Reply
  5. Brian Mulligan

    Thanks, Pale. A natural, if relatively uninformed, view of austerity is that if we can’t balance our budget external sources of money will lose faith in us and hike up interest rates. It seems a leap of faith to suggest that an increase in government spending will prime economic activity in an economy where it is very easy to spend that money on foreign goods (i’d love to see someone “run the numbers” on that). So we have austerity or default. As a public servant it would seem to me that a reduction in my pay and an increase in my workload due to shedding of jobs would seem preferable to the massive cutting and reduction in trade that would occur if we defaulted. It may have been a mistake to bail out the banks to the extent that we did, but we still need to figure out what to do next. I would like the professionals to give me a reliably accurate description of the probable outcomes of the various alternatives. Of course, as an engineer, I will want to see the calculations with particular attention to where the input numbers come from.

    Reply

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