In Ireland, A Picture Of The High Cost Of Austerity

[interestrateripoff]

http://www.nytimes.com/2010/06/29/business/global/29austerity.html?ref=business

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.”

Are there any more of these builds lying empty in Ireland?

Ireland took it's pain now rather than pretend it could borrow it's way out and create even bigger losses in the future. However it's losses from cutting now could still result in default and bankruptcy.

Leverage it's the way to poverty.

[50sQuiff]

Are there any more of these builds lying empty in Ireland?

Ireland took it's pain now rather than pretend it could borrow it's way out and create even bigger losses in the future. However it's losses from cutting now could still result in default and bankruptcy.

Leverage it's the way to poverty.

It's going to be tragic when it happens here. Late 20s girl at work just spent her and her husband's life savings on a deposit for a 1-bed new build in Greater London, the likes of which will end up looking like that photo in 5 years. I've heard colleagues in their mid to late 30s tell her how this is a wise decision and that the market is looking up.

God knows what will happen to the Bank of Mum and Dad once they realise their home isn't their pension after all, and that their kid's property is worthless.

[MrFlibble]

But it's different here in the UK - we have the miracle housing economy

Actually the UK economy reminds me of a dog eating its own faeces, same sh*t recycled round and round with the nutrients reducing each and every time.

[blue skies]

Get a load of the following ,

Want a bubble to worry about? According to Macquarie Bank interest rate strategist Rory Robertson, forget Australian house prices and US Treasuries, it's gold that looks due for a pop.

Fresh from winning his bet on Australian housing prices, Robertson is taking on a much more rabid bunch in the gold bug faithful - a broad church that ranges from the inflation-fearful to the Armageddon brigade forecasting the end of civilisation as we know it.

But Robertson argues that most people now betting on gold going up are doing so just because gold has gone up - the very stuff of bubbles. Rather than worrying about US Treasuries or Australian house prices (he doesn't see a bubble in either of those assets for fundamental reasons), punters should be sceptical of gold around US$1,250 per ounce, almost quintuple its early 2001 price of US$260.

''It is the very nature of bubbles that drives prices well beyond what most observers see as reasonable. Accordingly, the price of gold over time could jump to multiples of its current elevated price, before reversing,'' Robertson admits in a ''Bubble Watch'' report to clients.

See nothing to worry about down under "we are different!"

As if!

[SarahBell]

These estates were in a recent thread I'd started - they're planning to pull loads down cos no one wants to live there (assume they won't drop the price) and they're in the middle of no where too.

Suspect there's a use for them though rather than pulling them down.

[skomer]

These estates were in a recent thread I'd started - they're planning to pull loads down cos no one wants to live there (assume they won't drop the price) and they're in the middle of no where too.

Suspect there's a use for them though rather than pulling them down.

Not without people to fill them though.

Any news yet on how this is effecting the population figures of Eire?

Registered unemployment at 13 % seems a bit low considering the contraction there, so just how many people have left the country now?

In the early part of the bubble Eire's population expanded massively as it sucked in returnees and people from all over. I have yet to notice many coming over to the UK, as has happened in the past when Eire went t*ts up - perhaps the end of the University year will be more telling or are benefits there just too high to make it worthwhile?

[pablopatito]

"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."

Those crafty "investors", I wish they'd be clear about whether they want austerity or not - it must be very confusing for poor Osborne who is just trying to follow their instructions.

[Guest sillybear2]

[interestrateripoff]

"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."

Those crafty "investors", I wish they'd be clear about whether they want austerity or not - it must be very confusing for poor Osborne who is just trying to follow their instructions.

No it's just catch 22.

[fluffy666]

But it's different here in the UK - we have the miracle housing economy

Actually the UK economy reminds me of a dog eating its own faeces, same sh*t recycled round and round with the nutrients reducing each and every time.

At least we have the devaluation option.

But it seems obvious that hitting the incomes of the bulk of consumers in a recession will by definition make things worse.

Of course, the IMF and friends have spent much of the past few decades doing all this to the Third world - lend lots of money to those who cannot pay it back, act surprised when the resultant bubble pops, insist on drastic spending cutbacks inducing a massive recession and state bankruptcy, then hoover up all the assets on the cheap.

[Sour Mash]

"Oh no - there's economic pain following government cuts! It's a disaster, the government should just have borrowed and dumped the money into the economy!"

Why do the media expect that there is a magic easy way out? The Western economies are shagged from an unprecedented credit binge lasting over a decade. Of course there is going to be pain sorting the whole mess out. Why do they think it would be a good idea to pretend nothing is wrong and just borrow, borrow, borrow to keep the illusion going?

[Saving For a Space Ship]

But it's different here in the UK - we have the miracle housing economy

Actually the UK economy reminds me of a dog eating its own faeces, same sh*t recycled round and round with the nutrients reducing each and every time.

The Uk is like a small dog that has rolled in the faeces of a larger fox ( the U.S). In its' mind it prevents its' prey (sheeple) from smelling them & running away.

Irish businesses getting hammered too ..

Govt. intervention urged over credit famine

http://www.insideireland.ie/index.cfm/section/news/ext/accountschartered001/category/1084

Edited June 29, 2010 by Saving For a Space Ship

[Scunnered]

“Everybody’s feeling quite sick at what happened because things were going so well for Ireland,” said Patrick Honohan, the Irish central bank governor.

Doesn't it occur to him that the two might be linked?

Edited June 29, 2010 by Scunnered

[RichB]

But Irelands an island - they ain't making any more land you know. Shortage of housing will only get worse.

[Guest_James Toney_*]

Doesn't it occur to him that the two might be linked?

he is Irish, so no it will not occur to him.

[Blue Peter]

Doesn't it occur to him that the two might be linked?

+a gazillion

No wonder the world is in trouble with people like that in charge. "It was all going so well" (I was making out like a bandit, it was a pity that I didn't have time to do my job?)

What was he thinking?

Peter.

[Guest sillybear2]

But Irelands an island - they ain't making any more land you know. Shortage of housing will only get worse.

Fortunately (unfortunately?) they ran out of an even scarcer commodity before that; an ample supply of idiots.

[fluffy666]

Fortunately (unfortunately?) they ran out of an even scarcer commodity before that; an ample supply of idiots.

The world ran out of greater fools. Now, that was a bit tricky to predict.. apparently only one is born every minute. We needed more.

[Saving For a Space Ship]

But Irelands an island - they ain't making any more land you know. Shortage of housing will only get worse.

http://en.wikipedia.org/wiki/Alluvion

[TheCountOfNowhere]

Fortunately (unfortunately?) they ran out of an even scarcer commodity before that; an ample supply of idiots.

[Guest sillybear2]

The world ran out of greater fools. Now, that was a bit tricky to predict.. apparently only one is born every minute. We needed more.

Not to worry, we'll simply borrow against all the idiots that are yet to be born.

[scott666]

Is that one of those fancy gated communities like they have in the USA?

[Guest sillybear2]

Is that one of those fancy gated communities like they have in the USA?

Almost, but behind those gates are the b@stard progeny of zombie banks.

The crap social housing of the 60's took a couple of decades to get to that state, but in the modern era the banks and dodgy developers have produced a product worthy of instant demolition.

[non frog]

....

Is that one of those fancy gated communities like they have in the USA?

There are indeed similar estates of empty properties in the US.

Its not quite that bad in the UK although there are unsold new flats to be found if you look (including in the South East).

Here in Montpellier there are huge numbers of new build flats in construction. I really do not think it will be possible to fill them all. Hopefully they will get bought up as social housing and some of the old tower blocks knocked down.

The madness has been world wide. The pain will follow that pattern.

[okaycuckoo]

There are indeed similar estates of empty properties in the US.

Its not quite that bad in the UK although there are unsold new flats to be found if you look (including in the South East).

Here in Montpellier there are huge numbers of new build flats in construction. I really do not think it will be possible to fill them all. Hopefully they will get bought up as social housing and some of the old tower blocks knocked down.

The madness has been world wide. The pain will follow that pattern.

They will be bought up as social housing - but before or after the banks go bust? First choice is very expensive, and that's how the UK is approaching it through various bail outs and mortgage rescues.

Ireland's overbuild makes it the 51st state! But I know plenty of people living there and haven't heard any horror stories from them yet, at a point when the crisis has been bubbling for 3 years. No idea how it will play out.