In Ireland, a Picture of the High Cost of Austerity
By LIZ ALDERMAN
July 03, 2010 "New York Times" -- June 29, 2010 -- DUBLIN — As Europe’s major economies focus on belt-tightening, they are following the path of Ireland. But the once thriving nation is struggling, with no sign of a rapid turnaround in sight.
Nearly two years ago, an economic collapse forced Ireland to cut public spending and raise taxes, the type of austerity measures that financial markets are now pressing on most advanced industrial nations.
“When our public finance situation blew wide open, the dominant consideration was ensuring that there was international investor confidence in Ireland so we could continue to borrow,” said Alan Barrett, chief economist at the Economic and Social Research Institute of Ireland. “A lot of the argument was, ‘Let’s get this over with quickly.’ ”
Rather than being rewarded for its actions, though, Ireland is being penalized. Its downturn has certainly been sharper than if the government had spent more to keep people working. Lacking stimulus money, the Irish economy shrank 7.1 percent last year and remains in recession.
Joblessness in this country of 4.5 million is above 13 percent, and the ranks of the long-term unemployed — those out of work for a year or more — have more than doubled, to 5.3 percent.
Now, the Irish are being warned of more pain to come.
“The facts are that there is no easy way to cut deficits,” Prime Minister Brian Cowen said in an interview. “Those who claim there’s an easier way or a soft option — that’s not the real world.”
Despite its strenuous efforts, Ireland has been thrust into the same ignominious category as Portugal, Italy, Greece and Spain. It now pays a hefty three percentage points more than Germany on its benchmark bonds, in part because investors fear that the austerity program, by retarding growth and so far failing to reduce borrowing, will make it harder for Dublin to pay its bills rather than easier.
Other European nations, including Britain and Germany, are following Ireland’s lead, arguing that the only way to restore growth is to convince investors and their own people that government borrowing will shrink.
The Group of 20 leaders set that in writing this weekend, vowing to make deficit reduction the top priority despite warnings from President Obama that too much austerity could choke a global recovery and warnings from a few economists about the possibility of a much sharper 1930s style downturn.
“Europe is in a tough bind,” said Kenneth S. Rogoff, a former chief economist at the International Monetary Fund and now a Harvard professor. “If you want to escape default, the Irish path is the only way to go. But the Ireland experience points to the profound challenges that the current strategy implies.”
Politicians here have raised taxes and cut salaries for nurses, professors and other public workers by up to 20 percent. About 30 billion euros ($37 billion) is being poured into zombie banks like Anglo Irish, which was nationalized after lavishing loans on developers.
The budget went from surpluses in 2006 and 2007 to a staggering deficit of 14.3 percent of gross domestic product last year — worse than Greece. It continues to deteriorate. Drained of cash after an American-style housing boom went bust, Ireland has had to borrow billions; its once ultralow debt could rise to 77 percent of G.D.P. this year.
“Everybody’s feeling quite sick at what happened because things were going so well for Ireland,” said Patrick Honohan, the Irish central bank governor. “But we don’t have the flexibility to do a spending stimulus now. There’s no one who is even arguing for it.”
Mr. Honohan predicts growth could revive to a rate of about 3 percent by 2012. But that may be optimistic: Ireland, as one of the 16 nations in Europe that has adopted the euro as its common currency, is trying to shrink the deficit to 3 percent of G.D.P. by 2014, a commitment that could weaken its hopes for recovery.
These troubles sting many Irish, given the head start Ireland has on most members of the euro club. Its labor market is one of Europe’s most open and dynamic. After its last major recession in the 1980s, it lured knowledge-based multinationals like Intel and Microsoft — and now Facebook and Linked-In — with a 12.5 percent tax rate, giving Ireland one of the most export-dependent economies in the world.
Now, the government is pinning nearly all its hopes on an export revival to lift the economy. Falling wage and energy costs, and a weaker euro, have improved competitiveness.
Turning statistics into jobs, however, will be a herculean task. “Exports alone don’t drive a significant number of jobs,” said Paul Duffy, a vice president at Pfizer in Ireland.
Wage cuts were easier to impose here because people remembered that leaders moved too slowly to overcome Ireland’s last recession. This time, Mr. Cowen struck accords swiftly with labor unions, which agreed that protests like those in Greece would only delay a recovery.
But pay cuts have spooked consumers into saving, weighing on the prospects for job creation and economic recovery. And after a decade-long boom that encouraged many from the previous years of diaspora to return, the country is facing a new threat: business leaders say thousands of skilled young Irish are now moving out, raising fears of a brain drain.
David Stronge returned to Dublin in 2006 from an architecture job in Britain. “I wanted to come back here and get a piece of this action,” he said. “And I did for about a year. But then it started to tank.”
He moved to reinvent himself, returning to school with thousands of other Irish, in hopes that a higher degree would lead to better prospects. Mr. Stronge plans to seek alternative energy jobs in Britain once he gets his master’s degree in August.
“Ireland isn’t going to spend on infrastructure probably for another 10 to 15 years,” he said. “So you have to go to where the opportunities are.”
At the D Café, a sandwich shop facing a stretch of empty buildings in Dublin’s Docklands enclave, even that dream seems impossible. “If you’re self-employed and lose your job, you’re entitled to nothing, not even the dole,” said Debbie, the owner, who would only give her first name.
She transformed her convenience store into a deli when Liam Carroll, a property baron, threw up the nearby developments. But the tenants never came, and her business evaporated.
“It’s so destroying,” she said, gazing out the window. “We all live day by day, and we don’t know when it will ever pick up.”
Signs of the decline encrust Dublin’s streets. Boisterous crowds still mash onto the cobbles of Temple Bar. Yet farther out, “To Let” posters obscure the hollowed shells of once-vibrant cafes and clothing shops.
Fifteen minutes north of the city center, hulks of empty buildings form stark symbols of why Ireland must now hunker down. At Elm Park, a soaring industrial and residential complex, 700 employees of the German insurer Allianz are the lone occupants of a space designed for thousands.
In the impoverished Ballymun neighborhood, developers began razing slums to make way for new low-income housing. Halfway through the project, the financing dried up, leaving some residents to languish in graffiti-covered concrete skeletons. “Welcome to Hell,” read one of the tamest messages.
Now the government is debating whether to demolish developments it inherited from the banks it nationalized, and restore them to green pasture.
A bitter sense of regret punctuates chatter at any Irish bar, where the topic often turns to vilified bankers and politicians, or the latest jobless figures.
While no one is marching in the streets, the Irish do have a tipping point: Prime Minister Cowen, whose popularity has plummeted, agreed last week not to cut public wages again in the next budget. Many voters, having experienced the pain of austerity, are expected to express their anger in the 2012 elections.
“Then,” said Paul Sweeney, economic adviser to the Irish Congress of Trade Unions, “the Irish for once are going to have their revenge served cold.”
Sunday, 4 July 2010
Posts
SAm· 7 hours ago
One good thing about Hitler's Germany and Italy and Japan: they introduced an international trading system based on barter, which is far superior to what we currently have. What the G20 should do--but won't-- is set up a barter system to replace the current failed system. By the way, Chavez's Venezuela is engaged in barter, which is the principal reason he is demonized.
mot· 6 hours ago
In the mid 60's the Beatles paid 21s tax for each quid earned over a threshold.
They didn't like it.... tough shit.
Until that type of taxation returns..( make the rich Pay)... the "future" is only a
future of decline for all of us.
As it stands today, only the rich (over $150 million) are "secure".....
The rest of us will continue to be fucked..( the medical term)
The NYT,& their shills are corporate feudalists... and you're the serf.
Cat· 3 hours ago
There was a few who had said that the PIIGS nations would falter first, followed by UK and U.S. That does seem to be what is happening. They have packaged it up nicely as "austerity" when its name is still THEFT.
I hear nothing of raising taxes on the wealthy. This would solve some of this problem very quickly. The other avenue is to start rewarding innovation into sustainable energies and living. But of course that is not what corporations want.
We will never know what exactly happened to the Trillions of dollars they looted from the working classes. (in all these nations).
It seems that the working classes do have one card they can play (actually two) that would change things. One, we should all refuse to pay any loans, credit, mtg, payments to any of the banks that have been part and parcel to the looting. This would have to be an entire collective group endeavor. A few people here and there doing this would just get their fat asses hauled into court.....and the way things are going we may soon start seeing people jailed for not paying bills. A second thing people should do is to do something like ND did with the State Bank. This is one of few states that is still in the black.
It is not too late to RID our nations of Central Banking and all the criminality that comes with it. The G20 meetings are done completely behind closed doors, and the hosting country gets the bill for all the high tech surveillance that comes to town. Most of these people are UN-Elected people and therefore should not be deciding our fate. It is truly an oligarchy with built-in fascist feudalistic tactics.
People should watch John Coleman's Committee of 300. It was made in the 1990's.....but it is still relevant. What does that tell ya?http://www.youtube.com/results?search_query=john+...
Too bad the people have fallen for the trap of divide and conquer. How strange that Mexico now has these terrible problems with cartels. Coincidence on the timing? I think not. This is how the elites maintain their control; by keeping the REAL people fighting amongst each other.0
Follow the Facts· 2 hours ago
100 years....world population went from a little over 1 billion....to now almost 7 billion dangerous humans....that don't give a sheet about anything....except having "more babies"....
We are our own worst enemies....pity the rest of our co-habitants have to suffer....
oyate· 2 hours ago