If you have Irish friends this will tell you what they are going through. And there’s nothing - being in the euro - that they can do about it but slash wages, slash welfare and pray! The weak but floating pound helps our exports but it is not good news for the Irish.
Christina
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TELEGRAPH
19.10.09
Irish house prices to fall 45pc as debt spiral looms
Ireland is just halfway through its property slump and is likely to see house prices fall 45pc from peak to trough as austerity begins in earnest, according to a report by Fitch Ratings.
By Ambrose Evans-Pritchard
"The poor state of public finances has left the government no room to use fiscal measures to support the economy," said the group. It expects the jobless rate to climb from 12.5pc this year to 15pc by 2011.
"Tax rises, high unemployment, wage deflation, and property supply overhang" will weigh on the market for years to come, the reports says, meaning that property prices will fall back to the levels of 2000, reversing the entire boom of this decade.
The warning comes days after Brian Lenihan, Ireland's finance minister, admitted that the country was on the brink of a debt compound spiral that risks a further doubling of public debt to €160bn (£146bn) by 2013.
"We need to stabilise our national debt, we need to reduce borrowing, otherwise we are on the road to ruin," he said. Ministers have taken a 10pc pay cut to set an example. Mr Lenihan said there would soon be "substantial reductions" in all top officials' pay.
The government has stepped up its rhetoric over recent days, telling unions that the International Monetary Fund would take matters in hand with swingeing cuts of 30pc to 40pc unless Ireland put its own house in order.
Goodbody Stockbrokers said on Monday that Ireland's private sector debt will reach 225pc of GDP this year, up from 86pc a decade ago. Combined public and private debt will soon top 300pc of GDP, greatly impeding recovery.
Price deflation reached 6.5pc September, steeper than during the Great Depression, raising concerns that Ireland is now in a classic debt deflation trap as described by the US economist Irving Fisher. The average Irish household already faces negative equity of €43,000. Further property falls would leave large numbers of people with crippling debts The deflation trend has alarmed the Irish central bank, though there is little that the authorities can do. [That’s the euro for you! -cs]
House prices have dropped 24pc since peaking in late 2006, but at 7.5 times the average income, they have not yet returned to sustainable levels. Fitch expects the ratio to revert to 5.5 over time. In past cycles this rebalancing was achieved through wage inflation, but deflation puts the burden of adjustment on house prices instead.
While the European Central Bank has cut interest rates to 1pc, the full benefits have yet filter through to Irish households. Fitch said interbank lending rates have risen substantially, "reflecting market concerns over the creditworthiness of Irish banks and the Irish Sovereign [?]".
The agency said the scale of house price declines has raised "particular concern" about arrears on sub-prime debt and it is reviewing all Irish residential mortgage bonds that it rates.
The Celtic Tiger is clearly in deep crisis. Even so, it is the only EU country to eke out a small rise in exports this year. Its chemical, medical, and software shipments have held up well, despite Dell's decision to decamp to Poland. [The fact that wage rates have been slashed will help with this - the euro turns the Irish into the new peasants of Europe -cs]
Ireland has great flexibility but it faces a Sisyphean task as long as the euro keeps rising. Appreciation against sterling and the dollar over the past three months has alone wiped out more than a year of gains in labour competitiveness. How much can a country do?
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