Where is Ireland going?
During the summer I wrote about a shopping trip down Grafton Street where I sensed that the gloom that has descended in Ireland since 2008 was showing signs of lifting just a little. Sadly I was mistaken. More businesses are failing, more people are going out of work and more people are emigrating.
When I was in Poland at Christmas a friend queried as to whether or not it was Ireland's generous (as he saw it) social welfare provisions were what dragged Ireland down. Well, of course it wasn't. I can understand why a Pole would think that; Poland is a poor country that exported a lot of cheap labour to Ireland during the boom. Nor was it public sector pay, as such. Comparisons between average pay rates in Ireland and elsewhere are misleading unless they are put in the context of the overall cost of living, including the cost of accommodation (more on that in a minute). Of course, there were some heavily protected professions within the public sector and the higher levels (including Government Ministers) were overpaid. Moreover, we get bad value for money from our civil service but this is because of structural inefficiency more than anything else; it doesn't mean that there aren't lots of civil servants who aren't struggling at present. And fixing this isn't nearly as visible or sexy as just blindly cutting numbers and jobs.
It is also worth noting that, even at the height of the boom, our spending on many aspects of social policy was way down the EU league, behind even some of the former Communist countries.
No, the cause of our woes is simply the fact that for a decade the Government maintained a clientelist relationship with the building sector and ran the country for their benefit. Tax policies were pursued to favour building of houses and hotels that weren't needed; reckless lending to property developers allowed them to pay over the odds for land and the prices they charged for housing could only be maintained by reckless lending to buyers. I wasn't aware until recently that new mortgagees were even given a cheque book that they could use to buy furniture and white goods, the value of which would then be added to the mortgage sum; some used it even for buying groceries. The banks lent money far beyond their capacity but they were able to do this because of cheap credit in the Eurozone, chiefly from Germany.
Normally, it takes too parties to create a bad debt situation. Of course, the borrower is responsible in the first instance. However, business routinely involves extension of credit in some shape or form and there is, inevitably, some onus on the lender not to recklessly lend to those who are unlikely to pay back - or else face the consequences.
It is this "facing of the consequences" which is lacking in Germany's response to the crisis. The latter country persists in the belief that it can squeeze back the money its banks recklessly lent by forcing the Governments of Ireland and other countries to carry the losses of those banks. Angela Merkel is making much of the fact that, under the arrangements agreed by all but the UK last December, in future countries that break the Eurozone's fiscal rules can be taken to the European Court. The best indication of how badly that mediocre and lacklustre technocrat is missing the point is that, prior to 2008, Germany broke those rules more often than Ireland did. Ireland appeared to comply with them because the exchequer was buoyed up by money from property buyers; money that was ultimately borrowed from private German banks via Irish banks. There is nothing in the new "treaty" (if it ever materialises) to stop this from happening again. (This is not to mention the fact that there is no point in pursuing bankrupt Member States in the European Court for fines they can't pay).
There has been a change of Government in Ireland in the meantime but no evidence that the new Government is showing any new thinking; quite the contrary. They are still trying to balance the hole in the balance sheets by spending cuts that squeeze the most vulnerable sectors of society, such as special needs children.
It might well be argued that any option in the current situation will hurt vulnerable people. I have some sympathy with this view and I am wary of calls from the left for walking away from the banks entirely. There is a lot of focus on bondholders in this regard but ultimately, if Ireland walks away from the banking mess deposit holders will lose money too and that will hurt a lot of poor people and charitable institutions. So yes, I accept that there are no options that are consequence-free.
What makes the current situation harder to stomach is the fact that the new Government is applying one rule for special needs children and another for its own coterie of party hacks and donors. The former are being given jobs at pay rates that breach the Government's own ceilings and the latter are getting sinecure appointments to the boards of State institutions. There is a lot of talk of austerity from Government circles but it is all couched in terms that make it clear that there is an inner circle with a divine right to be insulated from such austerity.
In the meantime, there are families that can't even feed themselves...
When I was in Poland at Christmas a friend queried as to whether or not it was Ireland's generous (as he saw it) social welfare provisions were what dragged Ireland down. Well, of course it wasn't. I can understand why a Pole would think that; Poland is a poor country that exported a lot of cheap labour to Ireland during the boom. Nor was it public sector pay, as such. Comparisons between average pay rates in Ireland and elsewhere are misleading unless they are put in the context of the overall cost of living, including the cost of accommodation (more on that in a minute). Of course, there were some heavily protected professions within the public sector and the higher levels (including Government Ministers) were overpaid. Moreover, we get bad value for money from our civil service but this is because of structural inefficiency more than anything else; it doesn't mean that there aren't lots of civil servants who aren't struggling at present. And fixing this isn't nearly as visible or sexy as just blindly cutting numbers and jobs.
It is also worth noting that, even at the height of the boom, our spending on many aspects of social policy was way down the EU league, behind even some of the former Communist countries.
No, the cause of our woes is simply the fact that for a decade the Government maintained a clientelist relationship with the building sector and ran the country for their benefit. Tax policies were pursued to favour building of houses and hotels that weren't needed; reckless lending to property developers allowed them to pay over the odds for land and the prices they charged for housing could only be maintained by reckless lending to buyers. I wasn't aware until recently that new mortgagees were even given a cheque book that they could use to buy furniture and white goods, the value of which would then be added to the mortgage sum; some used it even for buying groceries. The banks lent money far beyond their capacity but they were able to do this because of cheap credit in the Eurozone, chiefly from Germany.
Normally, it takes too parties to create a bad debt situation. Of course, the borrower is responsible in the first instance. However, business routinely involves extension of credit in some shape or form and there is, inevitably, some onus on the lender not to recklessly lend to those who are unlikely to pay back - or else face the consequences.
It is this "facing of the consequences" which is lacking in Germany's response to the crisis. The latter country persists in the belief that it can squeeze back the money its banks recklessly lent by forcing the Governments of Ireland and other countries to carry the losses of those banks. Angela Merkel is making much of the fact that, under the arrangements agreed by all but the UK last December, in future countries that break the Eurozone's fiscal rules can be taken to the European Court. The best indication of how badly that mediocre and lacklustre technocrat is missing the point is that, prior to 2008, Germany broke those rules more often than Ireland did. Ireland appeared to comply with them because the exchequer was buoyed up by money from property buyers; money that was ultimately borrowed from private German banks via Irish banks. There is nothing in the new "treaty" (if it ever materialises) to stop this from happening again. (This is not to mention the fact that there is no point in pursuing bankrupt Member States in the European Court for fines they can't pay).
There has been a change of Government in Ireland in the meantime but no evidence that the new Government is showing any new thinking; quite the contrary. They are still trying to balance the hole in the balance sheets by spending cuts that squeeze the most vulnerable sectors of society, such as special needs children.
It might well be argued that any option in the current situation will hurt vulnerable people. I have some sympathy with this view and I am wary of calls from the left for walking away from the banks entirely. There is a lot of focus on bondholders in this regard but ultimately, if Ireland walks away from the banking mess deposit holders will lose money too and that will hurt a lot of poor people and charitable institutions. So yes, I accept that there are no options that are consequence-free.
What makes the current situation harder to stomach is the fact that the new Government is applying one rule for special needs children and another for its own coterie of party hacks and donors. The former are being given jobs at pay rates that breach the Government's own ceilings and the latter are getting sinecure appointments to the boards of State institutions. There is a lot of talk of austerity from Government circles but it is all couched in terms that make it clear that there is an inner circle with a divine right to be insulated from such austerity.
In the meantime, there are families that can't even feed themselves...
posted by Reluctant Irishman @ 8:34 AM
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