Confession

I keep reading – or trying to read – articles about the Irish crisis in my efforts to understand just what on earth is going on over there. After all, half my family come from there, some of them still live there, it’s our nearest neighbour and it seems to me to be important but I am continually defeated, despite having a degree in politics and economics and everything. I fail to see how the politicians can be insisting one moment that everything’s fine, nothing to see here, move along, just a small temporary cashflow problem, everything’s under control, and the next minute they’re calling in the IMF, the financial stormtroopers of the modern age, seemingly at the whim of some bond traders somewhere. Then there’s the fact that Ireland seem to have done everything that the powers that be insisted Greece should do and didn’t yet with exactly the same results as Greece had – massive deficit, bond holders revolting, entire country left sitting dejectedly with its cap out and a handwritten sign saying ‘hungry and homeless’. And I scratch my head as to why, given all this, our own government seems to think it’s a good idea to also massively cut spending, depress the economy, cut the tax base and generally trash the entire public sector given what a glittering success that has been in Ireland. And so I keep determinedly settling down with the newspaper and one of those interminable articles about the Celtic Tiger thinking, well this time, surely, it will all make sense, if only I could pay attention.

And then I remember that the Irish Taoiseach’s nickname is Biffo, standing for ‘Big Ignorant Fecker from Offaly’ and I just can’t get past that fact at all. I’m sure I never used to be that childish back in my youth. Anyone else getting less serious as they allegedly grow up? Or is it just me?

11 Responses to Confession

  1. The Paper Boy says:

    It’s all quite simple really… for every €1 of income the Irish Government is raising in 2010/11 it’s spending €1.32… That’s all well and good whilst your creditors are happy to finance it but as soon as they pull the plug it’s a rapid descent into a fire sale.

    Couple that with the property bubble fuelled since the inception of the Euro when Irish mortgage rates dropped considerably from their historic “norm” to the Euro “norm” (as they had in Germany and France primarily) and everyone went property mad. Prices climbed and when the times were good (prices inexorably rising) people took out massively overextended mortgages on massively overpriced houses (if you look back 2-3 years you’d find a comparable house in Greater Dublin was more expensive than in the leafier parts of Greater London). I know of more than one couple who in the face of this climate decided to remortgage every 18 months or so to take out the equity and live lavishly. Net result is that their share of their house was less than 5% before the prices plummeted, but they did have some lovely holidays and as we all know postcards make such a lovely shelter in the winter! Now their mortgage is approaching 200% of the value of their house (I refrain from saying “home” because they viewed it as an investment not an abode).

    Now in general the creditors (of the state for it’s debt, business and the general populace) want their wedge back and thanks to the fact that there’s now massive oversupply in the market for property, prices are dropping 50-60% in a 12-18 month period.

    Meanwhile because nobody’s buying the builders who were previously completing 90-120,000 houses a year (compare that with 60-80,000 completions in the UK per annum for a population 15x larger) can’t sell so collapse because they took out loans to speculatively build…

    Now the construction firms collapse, their suppliers find it tough too – net result more unemployment spreads.

    Then the banks get the jitters because they’ve got a load of debt secured on property that’s rapidly becoming worthless… so they tighten the credit lines to everyone. Then more businesses go belly up, more unemployment, more bad debts, more banking jitters… then the government decides that the banks can’t be allowed to fail so has to prop them up, in the case of Ireland sums to the tune of 40-50% of the size of the economy are required – on top of the ongoing 30% overspend…

    As for the IMF, the EU and uncle Tom Cobley who are piling in to rescue Ireland: They’re there primarily because if Ireland were allowed to fail, it sends the wrong message to the rest of the world about the Euro and Europe in general.

    The Dublin government seems not to have noticed that bigger picture outside Ireland but the rest of Europe at least has spotted the flawed thinking ongoing in Ireland and has forced its way through the front door and is applying medicine to the patient whether he wants it or not.

    Next stop for the EU/IMF bandwagon: Portugal

  2. Dom says:

    The shorter answer is that the Irish banks stuffed up more than most and now the government needs help with the mess that’s left.

    The UK government would love to stimulate the economy but can’t afford to.

    If I remember tomorrow I’ll fish out a link to a brilliant site that explains why the economy collapsed.

  3. disgruntled says:

    Paperboy – and after they’ve done Portugal, us?
    Dom – I don’t get the impression that the UK government is hating making those cuts at all…

  4. The Paper Boy says:

    After Portugal, I’d expect Spain. If there’s not been a marked uptick in the EU generally by the time they get there, the fertiliser will be headed towards the forced ventilation system in a big, big way.

    The UK is kind of lucky in that although we’re in the EU, we’re not in the Euro – which adds all sorts of additional constraints (the usual thing to do in a mess like this is to devalue the currency and/or fiddle with interest rates (up or down depending on the economic dogma du jour in play) – the Irish, Portuguese, Spanish & Greeks don’t have those items available…)

  5. Rebecca says:

    Isn’t it something, how we here in the U.S. elected a supposedly Progressive president and the U.K. put conservatives in charge, yet the policies of each government are more or less the same.

    Well, I say hope for the best, but prepare for the worst.

    The question is how to prepare. Even those who were so prudent as to have a 6 month nest egg saved in case of catastrophe, and there weren’t many, found that wasn’t enough to help them through over a year of unemployment.

    I’m sure that paying down debt and building up savings would be a great help…but ironically, those are two things which, if practiced by a majority of the population, will certainly slow economic growth.

    Maybe the answer is to just move to one of the few places which won’t be having such a big problem. How’s Canada doing these days? I haven’t heard so much about them.

    Or maybe moving to somewhere that your currency will stretch farther. I’m leaning toward Panama myself, but somewhere near a relatively unknown Mexican beach doesn’t sound half bad. Both places tend to have people who speak Engish, and I hear Spanish isn’t that hard to learn, anyway.

    So, if nothing else works, I guess my answer is just Run!

    Not a problem. I was planning on traveling anyway.

  6. disgruntled says:

    Well it seems like it doesn’t matter what the electorate say, because its the bond people who make the decisions in the end. In so far as I actually understand these things which obviously isn’t far…

  7. Ruaraidh says:

    You got it. The Bond vigilantes control what actually happens. Forget all the nonsense about the UK going bust though, we are far from that. Not only are we miles from historical highs of debt, our public spending is actually lower %/GDP at the moment than it was under Thatcher…. Plus UK debt is mostly on at least 13+ year terms so we don’t need to refinance as soon or as often.

    Though we do still need to issue gilts to the bond markets (UK treasury bonds) to finance our existing deficit, both the spread on new bonds (the price to issue them over a supposedly risk free debt) and the CDS (credit default swap) spread (the cost of insuring those gilts against us defaulting) is low and has remained such. That is why no-one outside the UK understands the justification for what the ConDem’d are actually doing. There is no need, we are not one of the PIGS (Portugal, Ireland, Greece, Spain) nor are we likely to go bust soon…..

  8. disgruntled says:

    Well, looks like you’re all far more serious and well-informed than I am, anyway

  9. yorksdevil says:

    Ireland is governed by a coalition of the (Fianna) Fail and Green parties, so what would you expect?

  10. WOL says:

    Doesn’t matter whether or not I understand what’s going on. Not a lot I can do about it, except try to stay solvent.

  11. disgruntled says:

    yorks – well, it’s governed by a big ignorant fecker from Offaly so maybe it’s exactly what you’d expect?
    WOL – true, I do like to understand how these things work though

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