Britannia Radio

Most of the basic facts in this have been covered by recent postings 
but the nitty-gritty detail here is new.   The story is grim enough 
but the facile and ridiculous optimism of the business executive at 
the end is the most depressing bit of the story.

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TELEGRAPH  28.2.09
Breaking point for the eurozone?
Ireland's 'miracle' economy has turned terrifyingly sour - and as it 
strains against the inflexibility of the euro, its next crisis may 
shake the entire EU.

By Gordon Rayner

They can barely let the words pass their lips, but some of the EU's 
most important policymakers were forced this week to discuss what was 
once unthinkable: that at least one of the 16 eurozone countries 
might be on the brink of ditching the single currency.

Jean-Claude Trichet, president of the European Central Bank, admitted 
that the 10-year-old eurozone was under "extreme strain", with weaker 
countries struggling to keep their economies afloat in the face of 
the devaluation of other currencies, such as sterling and the dollar.

Joschka Fischer, Germany's former foreign minister, darkly suggested 
that we would soon find out whether the eurozone would turn out to be 
"a disaster", while the German finance ministry is vacillating on 
whether it would be prepared to bail out insolvent states.  [Both 
speec hes reported via me this week - qv -cs]

The current thinking is that Germany and France, as the strongest 
economies in the zone and "lenders of last resort", would have to 
bail out failing states: the prospect of the eurozone breaking up 
would bring the future of the EU into question.

But the most startling fact to emerge this week is that the country 
which is seen as the most vulnerable, and therefore the most likely 
to ditch the euro, is not Slovenia, or Cyprus, or Greece, but Ireland.

Until a year ago, the Republic's Celtic Tiger economy, which 
attracted such blue-chip companies as Dell, Microsoft and Intel, 
seemed unstoppable. In a decade, the Irish economy grew by almost 90 
per cent, catapulting it from one of the poorest countries in Europe 
to the fourth-richest per capita. Government advisers from as far 
afield as Chile and Israel made pilgrimages to marvel at a model that 
they were desperate to emulate.

Not any more. All of a sudden, Ireland's debt-fuelled economy, built 
largely on a construction boom, has collapsed in a more spectacular 
manner than almost any other in Europe. Irish government bonds are 
rated as the riskiest in the EU ), and there has been panicky talk of 
Ireland as "the next Iceland".

On the streets, there is a whiff of revolution, with 120,000 people 
staging Dublin's biggest mass rally in 30 years last weekend to 
protest at the government's handling of the economy and its decision 
to impose what amounted to a pay cut on public sector workers. The 
unions have now threatened a "Doomsday" strike next month if the 
prime minister, Brian Cowen, does not think again. As the celebrated 
Irish economist David McWilliams put it: "The entire Irish episode 
will be studied internationally in years to come as an example of how 
not to do things."

So how did it all go so wrong?

Visiting Dublin this week, I took a stroll down the south bank of the 
River Liffey, to the site where Ireland's tallest building, the U2 
Tower, should by now have been rising out of the ground as the 
ultimate symbol of the Celtic Tiger's "economic miracle". Designed by 
Lord Foster, the 60-storey glass skyscraper was to have housed dozens 
of one-million euro apartments (£1 million [WRONG! 885,000, -cs] ), 
topped by a penthouse recording studio for Ireland's most successful 
band.

Instead, there was nothing to see but dead grass, crushed beer cans 
and a rusting skip inhabited by 3ft weeds. Two months ago, the 
developers postponed the project indefinitely. This scruffy patch of 
former dockland represents the end of the dream for Ireland, whose 
"economic miracle" was largely based on a crazy construction bubble, 
fuelled by tax incentives, which, when it finally (and inevitably) 
burst, created a black hole that threatens to suck in the rest of the 
failing economy.

In 2006, Ireland (population 4.2 million) built 88,000 houses, 
compared with 150,000 in the UK (population 60 million). At one 
point, a fifth of the workforce, swelled by tens of thousands of 
immigrants, worked in construction.

Irish families on middle and even low incomes cashed in their 
pensions or borrowed heavily to buy second, third or even fourth 
properties, believing they could rent them out to the migrant workers 
who had caused net immigration for the first time in Ireland's 
history. They could borrow from banks that enjoyed one of the loosest 
regulatory regimes in Europe, and which shipped in money from abroad 
to further stoke up the boom.

Ireland now has up to 350,000 empty homes  [on the same scale here 
that would equal 5.25 million! -cs] - more than its entire private 
rental market - many of them simply abandoned as builders went bust. 
House prices are expected to fall by 80 per cent.

Ireland might have been able to withstand Europe's most savage 
property collapse had not its export trade been shredded at the same 
by currency devaluation in its two key markets - Britain and America.

The relative rise in the value of the euro against sterling and the 
dollar has made Irish goods - and wages - prohibitively expensive. 
Businesses in the north of the Republic are on their knees because 
competitors in Northern Ireland are undercutting them by as much as 
half.

In an ominous sign of things to come, the computer firm Dell has 
announced 250 redundancies at its plant in Limerick, simultaneously 
confirming that it intends to create thousands of new jobs in Poland.

The slump in the Irish job market means that the country's youth, who 
for years now have been able to find jobs at home, are once again 
having to look abroad for employment, so that the Republic may soon 
return to its traditional pattern of net outward migration. Already, 
large numbers of Irish workers are moving to Britain seeking work.

Crucially, the Irish government is powerless to act because, as a 
member of the eurozone, it has no control over interest rates or 
currency devaluation.
While the Bank of England could cut interest rates to one per cent 
and plans to devalue sterling with "quantitative easing", the Irish 
have had to resort to desperate measures to reduce their budget 
deficit, such as the public sector wage cuts which led to the mass 
demonstrations.

Evidence of the effect on Ireland's real economy, as unemployment 
heads towards 10 per cent, is everywhere.

In Dublin's docklands, once expected to become a sort of European 
Dubai, row upon row of kitchen suppliers, interior design and 
furniture shops have closed since my last visit nine months ago, 
their windows covered in a thick layer of grime.

Catherine Claffey, whose family have sold flowers at the same pitch 
in Grafton Street, a few yards from Chanel and Louis Vuitton, for 85 
years, told me business was down 60 per cent on last year.
"I've only been able to keep going because I've never taken out any 
big loans," she said. "But I have friends earning very modest 
salaries in the public sector who have been told their wages are 
going to be cut by 500 euros a month. How are they going to survive?"

A hundred yards down the road, a group of taxi drivers was staging a 
noisy protest over the government's failure to manage taxi numbers. 
Thousands of workers who have lost their jobs in other sectors have 
been allowed to set up as cabbies, meaning that Dublin now has 16,000 
licensed taxis. New York, with a population 17 times as large, has 
13,000.

Andy Doyle, a cabbie for 20 years, said: "There are so many taxis now 
that you can be waiting two-and-a-half hours on a rank before you 
pick up a fare. Yesterday I waited an hour and three quarters for a 
6.20 euro fare. You just can't live on that. But the government is 
happy to let it go on because it keeps the unemployment figures down. 
It's madness."

The resounding "No" vote in last year's referendum on the European 
Constitution suggested that Ireland has finally fallen out of love 
with Europe. But will it now take the ultimate step and ditch the euro?

Sean Murphy, director of policy at the business organisation Chambers 
Ireland, believes not.

"Everything positive in the Irish economy for the past 30 years has 
been driven by our membership of the EU," he said. "In the long term 
it will continue to benefit us. We have a small, flexible economy, 
which means we will be able to turn it round much quicker than a 
bigger economy like the UK's.

"It's become clear that we need a more balanced, diverse economy, 
with more jobs in things like alternative energy and information 
technology. I believe our EU membership can only help with that."

But if the Irish economy, and that of other struggling EU states, 
continues to nosedive, the cohesion of the eurozone is likely to be 
tested to breaking point.