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ONE of the most remarkable economic turnarounds of the century is presently becoming visible in Ireland.
A year ago, the Irish economy was deep in the doldrums, and the European Union (EU) had to bail the country out. Today the economy is growing, and the government is able to step out of the EU aid programme.
Before we look at the particulars, it is perhaps necessary to view the broader background.
When the economic crisis started in 2008, governments all over the world faced very difficult budgetary choices. A fierce debate raged about the basic approach.
Oversimplified, conservatives reasoned that governments could not go on spending much more than their incomes allowed.
Given that the crisis generated much hardship, the budgetary demands spiralled. These conservatives were therefore n favour of strict financial discipline, even though this was at times received very badly by their voters.
On the other hand, the more left-inclined were of the opinion that the budget cuts were pushing the economy even deeper into the crisis. They said governments have to spend themselves out of the crisis, and finance their growing deficits by borrowing.
By and large, the conservative viewpoint was taken by governments in northern Europe with a culture of frugality and hard work, like Germany, the Netherlands and the Scandinavian countries. The opposite was done in the southern nations with their abundant sunshine, siestas and tolerance for corruption, like Greece, Italy, Spain, and to a lesser extent also France.
Mostly the first opinion, led by Germany’s Iron Lady Chancellor Angela Merkel, has won the day. Bankrupt countries were bailed out, but strict conditions were laid down. They had to cut their state spending drastically, curtail corruption and convince their people to work harder and more efficiently.
In Greece, probably the worst off, this has caused considerable hardship. Since 2007 the Greek economy has shrunk horribly - by a third - and unemployment has never been so high.
This week, it was reported that the Greek government is forecasting growth of 0.6%, the first in many years, giving rise to speculation that the country’s economy may be turning the corner. But it is, perhaps, too early to say.
What cannot be denied is that Ireland is on its way up again. The country was one of the worst hit by the crisis, exacerbated by successive governments’ mismanagement and excessive spending. The EU and the International Monetary Fund had to contribute loans of €67.5bn, without which Ireland would have gone bankrupt.
These loans also came with strict conditions, which – in the short term – created much hardship. In November, unemployment fell to its lowest level in four years, 12.5%, with a quarter of those under 25 still without a job.
But the Irish Economic and Social Research Institute, the country’s most respected economic think tank, has now come up with an optimistic report. Helped along by growing exports and consumer spending, the economy is predicted to grow by 0.3% this year and by 2.7% in 2014.
Just as important is the government’s own prediction that the country’s gross debts (presently 124% of GDP) will fall to 93% in 2020. In addition, it is predicted that no extra budget cuts will be needed.
It is, of course, early days. Whether Ireland has really turned the corner will only be seen with any amount of certainty a year or two further down the line.
Nevertheless it does look, albeit tentatively, as if the worst is over. And although the after-effects will still be felt for a considerable time, it seems as if the conservative approach – austerity, instead of spending – may be the correct one.
The cases of Germany, Scandinavia and the UK seem to support this conclusion. This week, the German central bank predicted “strong growth” in the present European winter, while the British Chambers of Commerce expected the economy to surpass the economic peak of 2008 in the second half of 2014.
At the same time, French economic activity fell to a seven-month low in November. The Italian economy is stagnant. The financial website Forbes reported earlier this month about “a dramatic misallocation of resources”, and ascribed it to “a bureaucratic apparatus meant to satisfy its own needs and preserve its power, rather than serve citizens and businesses” – a classic example of free spending, without taking into account that you have to earn the money first in order to spend it.
Nevertheless, while the jury may be leaning towards the conservative viewpoint, the members still have to make their final decision. And the proof of the pudding wil become clearer, probably during the second half of 2014.
Economically, next year will undoubtedly be very interesting.
- Fin24
* Leopold Scholtz is an independent political analyst who lives in Europe. Views expressed are his own.
A year ago, the Irish economy was deep in the doldrums, and the European Union (EU) had to bail the country out. Today the economy is growing, and the government is able to step out of the EU aid programme.
Before we look at the particulars, it is perhaps necessary to view the broader background.
When the economic crisis started in 2008, governments all over the world faced very difficult budgetary choices. A fierce debate raged about the basic approach.
Oversimplified, conservatives reasoned that governments could not go on spending much more than their incomes allowed.
Given that the crisis generated much hardship, the budgetary demands spiralled. These conservatives were therefore n favour of strict financial discipline, even though this was at times received very badly by their voters.
On the other hand, the more left-inclined were of the opinion that the budget cuts were pushing the economy even deeper into the crisis. They said governments have to spend themselves out of the crisis, and finance their growing deficits by borrowing.
By and large, the conservative viewpoint was taken by governments in northern Europe with a culture of frugality and hard work, like Germany, the Netherlands and the Scandinavian countries. The opposite was done in the southern nations with their abundant sunshine, siestas and tolerance for corruption, like Greece, Italy, Spain, and to a lesser extent also France.
Mostly the first opinion, led by Germany’s Iron Lady Chancellor Angela Merkel, has won the day. Bankrupt countries were bailed out, but strict conditions were laid down. They had to cut their state spending drastically, curtail corruption and convince their people to work harder and more efficiently.
In Greece, probably the worst off, this has caused considerable hardship. Since 2007 the Greek economy has shrunk horribly - by a third - and unemployment has never been so high.
This week, it was reported that the Greek government is forecasting growth of 0.6%, the first in many years, giving rise to speculation that the country’s economy may be turning the corner. But it is, perhaps, too early to say.
What cannot be denied is that Ireland is on its way up again. The country was one of the worst hit by the crisis, exacerbated by successive governments’ mismanagement and excessive spending. The EU and the International Monetary Fund had to contribute loans of €67.5bn, without which Ireland would have gone bankrupt.
These loans also came with strict conditions, which – in the short term – created much hardship. In November, unemployment fell to its lowest level in four years, 12.5%, with a quarter of those under 25 still without a job.
But the Irish Economic and Social Research Institute, the country’s most respected economic think tank, has now come up with an optimistic report. Helped along by growing exports and consumer spending, the economy is predicted to grow by 0.3% this year and by 2.7% in 2014.
Just as important is the government’s own prediction that the country’s gross debts (presently 124% of GDP) will fall to 93% in 2020. In addition, it is predicted that no extra budget cuts will be needed.
It is, of course, early days. Whether Ireland has really turned the corner will only be seen with any amount of certainty a year or two further down the line.
Nevertheless it does look, albeit tentatively, as if the worst is over. And although the after-effects will still be felt for a considerable time, it seems as if the conservative approach – austerity, instead of spending – may be the correct one.
The cases of Germany, Scandinavia and the UK seem to support this conclusion. This week, the German central bank predicted “strong growth” in the present European winter, while the British Chambers of Commerce expected the economy to surpass the economic peak of 2008 in the second half of 2014.
At the same time, French economic activity fell to a seven-month low in November. The Italian economy is stagnant. The financial website Forbes reported earlier this month about “a dramatic misallocation of resources”, and ascribed it to “a bureaucratic apparatus meant to satisfy its own needs and preserve its power, rather than serve citizens and businesses” – a classic example of free spending, without taking into account that you have to earn the money first in order to spend it.
Nevertheless, while the jury may be leaning towards the conservative viewpoint, the members still have to make their final decision. And the proof of the pudding wil become clearer, probably during the second half of 2014.
Economically, next year will undoubtedly be very interesting.
- Fin24
* Leopold Scholtz is an independent political analyst who lives in Europe. Views expressed are his own.
