Is Ireland the same as Greece?

June 1, 2011

By Kathleen Brooks. The opinions expressed are her own.

When Nouriel Roubini makes a prediction people stand up and listen. He was right about the financial crisis, now he has predicted a sovereign debt crisis (aka default) for Ireland in the next two to three years.

This prediction comes at a delicate time for Europe’s periphery. Greece is staring into the abyss of default, fiscal despair and a possible exit from the euro zone if it doesn’t receive its fifth tranche of funds from the IMF next month.

The world’s lender of last resort is taking the tough love approach with Greece and threatening to withdraw its support unless there is evidence that Athens is going some way to mend its spend-thrift ways and get a proper tax collection programme in place. Without these funds Greece wouldn’t be able to pay the wages of state employees or pay its bills, the consequences of which we can only imagine.

But could the same happen to Ireland? So far Ireland, which received the next bailout after Greece, hasn’t been put in the same bucket as Athens. Its population are considered to be fairly reliable taxpayers and although competitiveness is definitely a problem, the government is taking steps to address this problem and cut the state’s bills at the same time.

Just last week a story hit the Irish press that the minister for jobs was planning to cut the wages of 250,000 low-paid workers, which comes after rounds of pay cuts for higher earners especially those in the public sector. These are tough measures, but they are also brave measures that need to be implemented to get the country onto more sound fiscal ground.

This isn’t popular policy making, but it is realistic.

Measures such as this along with the Irish Premier’s insistence that Ireland will not default and pay back its debts are music to the ears of the EU. In Germany and Finland for example, the public wants to hear these stories to ensure their taxes are only being used to bail out states that truly want to change their ways.

While this differs distinctly from Greece, there are some similarities that may render the bailouts of both countries’ useless. Both countries are literally drowning in debt. Ireland’s gross debt is more than $2 trillion dollars, yet its economy is approx. $160bn and the annual value of its exports is just under $110bn.

Paying back this money is going to choke growth for years to come. Likewise, even conservative estimates of Greece’s debt to GDP are around about 150 percent – above the 100 percent level considered just-about “sustainable”.

The bond markets are also cautious about Ireland and remain unwilling to lend to the country without a hefty premium to counter the increasing risk of default. Two-year yields are less than half those of Greece, but remain elevated for a developed nation at more than 12 percent. Likewise, the cost to insure Irish debt against default has climbed in line with Greece, although the cost of insurance is cheaper.

Implementing budget cutting measures (as in Ireland’s case) or not (as in Greece’s case) doesn’t seem to matter when it comes to growth. At the end of last week Ireland announced that retail sales plunged in April, sales are now contracting at a 3.9 percent annual rate. Meanwhile unemployment is nearly 15 percent, industrial production is in negative territory this year and consumer sentiment has barely recovered since 2008. Greece is still mired in recession although growth expanded for the first time since the end of 2009 in the first quarter.

Two-to-three years is a long time and anything can happen. But if growth in Ireland continues to deteriorate then a default may well be necessary to make its debt load sustainable and Roubini will be right yet again. Dublin may not be staring into the abyss like Greece is, but it’s not far behind.

Comments

Greetings from Athens Greece.
First of all I would like to say to whoever is reading my post,that the media all over the globe don’t really understand what is going on in Greece.
Greece for decades had corrupt politicians that were stealing money and had partners in EU.The politicians in EU and especially the banking system are corrupt and don’t care about people.This is all an economic twisted play to make as all economic slaves.The are boring money to Greece Ireland Portugal with a high interest so they are making money.The people in Spain and in Greece has woke up.We are on the streets demonstrating for 9 days and we will continue doing that till all the thieves go in prison.Something else that you might not know is that the constitution in Greece says,that if the country has to borrow money,the parliament must agree by the 3/5 to do that.So right now what they are doing is illegal and against the constitution.This is a treason and they will all face justice.I would like reuters to have a look of what is trully going on here and inform the public about it.On Sunday people of EU will demonstrate against the banking system and the economic path that EU has planned for us all.In all the major cities of EU people will gather and the media don’t even refer to that.Please make all of these known to the public and get out and scream for democracy.
with regards
Lakedemon

Posted by Lakedemon | Report as abusive
 

Two comments:

First, regarding the following: “… the IMF … the world’s lender of last resort …”

Let’s not forget that the IMF is funded, in large part, by the U.S. The debt-burdened U.S. is further burdened by the deficit spending of Europe.

Secondly, regarding: “Its population are considered to be fairly reliable taxpayers and although competitiveness is definitely a problem …” A big part of Ireland’s problem is the free ride they’ve provided to attract foreign investors, which has lead to Ireland being, by far, America’s biggest trade deficit (when expressed in per capita terms) – 25 times larger than our deficit with China. Nearly 15% of all of Ireland’s income is derived from its trade surplus with the U.S.

In the end, American workers and taxpayers are footing the bill for Ireland, through the trade deficit and through direct support for the IMF. If America wants to solve its debt problems, its trade policy is the place to start.

Posted by Pete_Murphy | Report as abusive
 

I don’t know your point Mrs. Brooks. Honestly, what do you mean by referring to the $ 2 trillion external debt ? Monaco and Switzerland have the highest external debts in the world. Do you know why ? Because Monaco is known for it’s millionaires and Switzerland for it’s banking.

As for Ireland, it is a well known tax haven for IT, banking and call center corporations so naturally mother companies have a claim on their daughter companies in the country. So what are you trying to communicate here ? That it is a bad thing to be an attractive country for investors ? Then count in the UK and the Netherlands as well. But hopefully by now you might already start to comprehend that you cannot simply treat this number as a “loan” to the Irish population. Not so smart.

Anyhow, perhaps you would like to refer to Ireland’s public debt level to GDP which is at 93 %. High, but that we know and it would be great to see some further cuts in government spending.

Posted by FBreughel1 | Report as abusive
 

I disagree — somewhat. Ireland has taken tough but necessary steps to get its house in order. It also maintains a business friendly environment which should attract more companies to establish there. The country’s rocky road ahead is undeniable but passable.

Oh, me name is McNamara, I’m the leader of the band, a credit to old Ireland…

Posted by schmendric | Report as abusive
 

Of course the EU is happy that Ireland will repay its debts. Much of our sovereign debt is bank debt forced on to the shoulders of Irish taxpayers by the previous administration decimated in the February election. An act of such utter incompetence that it threatens to sink the entire economy. And who benefits by this stupid decision? The French, German and British banks who lent to Over-zealous Irish banks busy fueling an unsustainable property boom at home.

Gambling debts, in other words.

Without the bank debts Ireland could bridge its budget deficit within a few short years. But in all likelihood, without a change of direction by the blinkered mandarins in the ECB, a re-structuring of Ireland’s debt is unavoidable.

And, contrary to what Kathleen Brooks says, Ireland has become one of the most competitive markets in the Euro zone. This is confirmed by the number of new multinationals setting up ,here and the huge growth in exports even in the midst of the recession.

Posted by Hewson | Report as abusive
 

We are witnessing the results of so-called deficit hawks with increasing unemployment, falling wages, lower economic output,falling tax revenues and pending default. What has happened to all of the right wing politicians and economists that were heralding Ireland’s steps to cut their deficit a year and a half ago. The silence is deafening.

Posted by seattlesh | Report as abusive
 

The growth of Ireland was boosted by hosting hundreds of
big foreign companies with low or no taxes.
Irish people by sure pay taxes,but foreign companies come and go.
Cloud taxation.

Posted by SteveP | Report as abusive
 

@Lakedemon: I think it is the other way around and that the Greek people have no idea of what is going on in the world. But let me tell you this: We are all aware of the corruption,greed and laziness in Greece. Demonstrating against hard work will find very little support with modern, hard-working Europeans.
So either Greece changes its attitude and its work-ethic or we will declare you bankrupt and throw you out of the EU. Then Greece can start negotiating its financial situation with the Chinese government, like the African countries. They are communists but I can tell you they are NOT lazy and will tolerate your whining even less.
We treat you like adults and we expect you to comply and pay every single euro back. You should be very grateful of the patience we have shown. This is OUR tax money. Stop whining. Stop demonstrating. Start taking responsibility. Welcome to reality.

Posted by FBreughel1 | Report as abusive
 

Ireland as a small open economy is always going to be vulnerable to global financial disruptions.The global financial meltdown triggered by Lehman Brothers collapse exposed serious flaws in Ireland’s economy-namely an over-reliance on tax revenue from property and excessive Government spending(100+ quangos,excessive remuneration for top civil-servants,M.P.s and academics paid a multiple of the European norm).Poor regulation and a tolerance of corruption and greed in financial circles added to the toxic mix.However the E.C.B. didn’t do a whole lot of regulating of French and German banks ,who loaned over 700 Billion Euros to the peripheral’PIG’s,
Clearly the E.C.B. which was responsible for financial regulation for the entire Euro-zone had difficuly saying Boo! to a goose.Ireland’s tiny workforce(approx 2 Million) has to shoulder the burden of the 85Billion Euro ‘bailout’.The baleful bond-holders must be appeased!

Posted by 7trickpony | Report as abusive
 

Very sensationalist including Gross National Debt as an indicator of a county´s position…it has zero bearing on anything from an economic/ bailout point of view.

Ireland spends approximately 20 bln a year on social welfare payments, an area that has yet to receive much in the line of cuts.

People on social welfare benefit from one of the highest levels of payment in Europe. Pensioners receive a fairly decent level of payment form the government.

There is plenty of room to cut in this area.

Posted by CrLynch | Report as abusive
 
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