The Irish Economic and History Lessons

I had a fascinating couple of conversations with the Dad of my Irish family last night. There was too much for me to remember it all, so, first of all, here are my history lecture notes.

* ‘The Wind that Shakes the Barley’ was filmed in Bandon
* Michael Collins spent the night before his assassination at the hotel in Bandon, he was killed just up the road
* There is a potato famine graveyard just up the road from Bandon
* When some construction work was happening in Bandon 20 – 30 years ago, they knocked down a shed and found a pile of rifles from the civil war, all of them etched with the names of local men who owned them
* Castletownsend, which is where we are headed tomorrow, has its very own pair of elderly, eccentric local aristocrats, as well as the bishop who happened to marry Becks and Posh (and still catches up with Becks from time to time)
* The Irish WWI soldiers who were injured, were brought back to Cork to be treated, those who then died, were buried in Castletownsend, so the graveyards are full of generals, captains etc and very important people.

The far more interesting part of the conversation, though, was when we talked about the state of the Irish economy. When I was in Australia, I couldn’t understand why everyone in Ireland was so upset about the bailout. I remember having a conversation with a lady I met at a concert, at which we agreed, why were they protesting? Surely there was nothing else they could do but accept the bailout? But since I’ve been here and learnt more about the conditions of the bailout, as well as the circumstances surrounding the initial recession and economic crisis, I’ve started to get angry on behalf of the Irish people.

As far as I can tell, there are two very big problems that Ireland has had to come up against when dealing with their economic crisis. The first was the bank guarantee. During the initial GFC in September 2008, the Irish state decided to guarantee all the debts of the Irish banks to prevent them from failing. On the surface, this was not necessarily such a bad idea, as other countries, like the US and Australia, also guaranteed their banks. The problem is that, unlike the Australian banks, which didn’t end up defaulting on their debts, the Irish banks did, making all of the private debt of individual investors in the banks into public debt of the government. This means that Irish people who had money in the Irish banks technically don’t lose their savings (I say ‘technically’, because they now have to pay back their own savings through taxes), but it also means that the Irish taxpayer is suddenly expected to pay back the banks for all the stupid, manic, risky hedge funds and other idiocies and mistakes the banks and their managers made during the past decade. That is a debt of almost 100 billion dollars, if you can fathom that, and that debt is now the Irish state’s problem to deal with, on top of the deficit the government wracked up on its own (on a side note, the Irish government’s deficit actually wasn’t that big compared to Japan’s – the Japanese deficit was at 200% of its GDP when the earthquake hit last week, the only difference is that until mother nature started wreaking havoc on the country, most people believed Japan would be able to pay back the debt. No-one believes Ireland can pay back their debt, so they’re all running shitless from the country and putting a freeze on lending, which is what screws up business, which is what screws up the economy. Just another reason why economics is so fucked up and booms and busts and recessions are, in many ways, just about confidence and lack of confidence. In other words, its all in your head).

The second, and by far bigger problem, as far as I can tell, is that because Ireland no longer has its own separate currency and central bank, because it is a part of the Euro currency zone, it cannot do the things that countries do when they are in dire financial straits, like devalue their currency or increase/decrease interest rates. So, now, when the Irish state is in serious trouble and people are really struggling, you would expect an independent country to keep interest rates low to take the pressure of their citizens and their debt repayments, to allow them to have some spare income to put back into the economy. This would also potentially encourage people to take out loans to, say, start business, which is what is how a country gets out of a recession. However, the Euro central bank is increasing interest rates. Further, when Ireland’s property bubble started in 2004, the Euro central bank was keeping interest rates low, whereas an independent country would have raised interest rates to put the brakes on the economy (like Australia was doing in 2007 – 2008, just before the GFC). Things get worse when you look at the ‘bailout’ that Germany and France and the rest of the Eurozone have approved from Ireland. They want Ireland to pay back the 90 billion-odd dollars that has been given to prop up the Irish banks, and they’ve put a ridiculous interest rate onto the loan (actually making themselves a tidy profit off of the lending), meaning that its going to be even harder, nigh on impossible, for Ireland to pay the debt back, let alone get its economy working properly again. They also want Ireland to do things that are going to hinder its economy, like increase its corporation’s tax rate. This would essentially further deter international companies from coming to Ireland, setting up business and boosting the economy. The reason Germany and France want the change, is so they can attract the same businesses to their own countries.

SO. To sum up, the Euro zone is sometimes working as if it were a single unit, and other times working as if it is a bunch of separate countries. They don’t seem to have gotten the mix right yet (well, who can blame them? The Euro zone is relatively young – only 10 years – and was an experiment when it started). I remember there was a lot of debate when the Euro was introduced in 2001, about whether or not this was a good idea, whether it was truly going to benefit all the countries involved, or whether the richer countries were going to end up propping up the poorer ones. Its the reason Norway didn’t join the EU, its the reason the UK, Sweden and Denmark didn’t adopt the Euro. At the time, when everyone was rushing to sign up, it seemed like madness and pigheadness and pettiness that these countries didn’t want to join, especially when things went so well and the Euro was so strong in those first 8 – 9 years. Now, it seems sensible.

I still have faith that the Euro zone can work, but the big, powerful countries can’t ‘have their cake and eat it too’. Germany and France can’t take the benefits of being connected to a booming economic like Ireland’s in the good years and then refuse to assist (and I mean, truly assist them) in the bad years. Germany and France (and other countries too, I just can’t be bothered listing them) are wanting to pretend their economies are separate now that things are going badly, when they wanted them to be interlocked when things were going well. The economic zone just can’t function that way, and as far as I can tell, it doesn’t actually assist Germany and France in the long term. Its like the social welfare state. The best argument for social welfare is that the healthier the poorest people in a country are, the healthier all people are. If one group of people in a country are much worse off than the rest, it effects the whole of the society and how well it functions. Surely this would be this same for the Euro zone? Germany and France can’t deny that their economies are now irrevocably linked to the Irish (and Greek and Spanish and Portugese), so, unless they want to go through the massive hassle and expense of going getting rid of the Euro and going back to the deutsche mark, they are surely going to have to assist these failing states, aren’t they? Further, surely if they are hindering the Irish economy, they are, in effect, hindering their own?

Alright, this has been a very long and dry post (I hope not boring! I find it fascinating!), but it was important for me to write it all down. Congrats if you’ve gotten this far, and I hope you found it mildly interesting and/or easy to understand. I hope I’ve given you something to mull over. If you’ve got any thoughts on the subject, I’d be interested to hear them and I promise to get back to my fun, diverting, holiday posts in a day or two.


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