I’m no economist so the events of recent years have been bewildering. Anyway last night it was finally confirmed that the EU and IMF will provide Ireland with a means to pay its tab. What is this likely to mean for Ireland and the EU in the short to medium term?
Well there goes the government.
Election in Jan
Or sooner. two independents have pulled their support.
The IMF normally imposes fairly harsh cost cutting measures when it comes in to stabilize a country’s economy. Although since Ireland has already done some pretty drastic cost cutting, maybe the IMF won’t bring its full weight to bear.
Reduced spending tends to favor deflation over inflation but I have no idea where Ireland is on that score.
The agreement should provide support for the Euro in the same way as the Greek bailout did. The shares of any Eurozone banks that had exposure to Ireland should do well today.
In summary, business as usual.
In the short term nothing much happens. Ireland was already fully financed till halfway through next year. In the longer term they just ass fucked the Irish citizens for generations to come. They are the ones being settled with the bill for paying for the incompetence of idiotic banks that should have gone bankrupt. The Irish public should repudiate the debt as being odious and the public of the nations offering up the loans should rise in anger at such wanton waste of their hard earned money. This initiative starts to look attractive: Bank Run 2010 – at least for any bank that is on the public dole.
Perhaps this is a bit simplistic, but wasn’t Ireland’s boom in the 90s and 00s due to very low corporate tax rates?
Won’t corporate tax rates now need to be increased comparable to other EU countries, and won’t this further damage the Irish economy?
This is just another giveaway to the banksters, with the costs being borne by regular citizens. The fear is that a bank run in Ireland will spread through the rest of Europe, causing German, British, and French banks to collapse under the weight of all their rotten investments (for Ireland in particular, Germany and the UK seem to have the most exposure). Because young people are leaving Ireland in droves and the rest of the populace is barking mad, Ireland’s government has made some attempt to extort some concessions out of the EU, but the moral hazard is no more diminished.
So Ireland’s austerity will continue while British and German taxpayers subsidize Ireland’s low corporate tax rate.
I don’t think this will be a condition for the bailout as this would just whipe the last hope for short term economic growth in the country and the IMF is not that stupid.
However, further down the line there may be some negotiations with the EU about this, but that is for another day.
For this bailout to work the IMF will have to give the government persmission to default on the bank bonds that they guaranteed in September 2008. Its these bonds that really are the issue at the heart of our banking problems and the country will remain insolvent as long as they remain. Some form of Debt / Equity swap would be the logical way out.
There was a real boom till the early 00’s based on huge external investment in Ireland. Most major tech firms had and still have a large presence in Ireland.
After the early 00’s the boom was all smoke and mirrors based on a huge property bubble helped on by Government actions to push tax incentives on property development and banks giving huge unsecured loans to developers (8 developers currently own nigh on a billion in debts alone). Add to that a very unregulated banking world (less regulation that the US) and here we are.
The current loans will basically bailout German bond holder in our banks as the government gave a full banking guarantee including cover for the bond holders. So once against we see people at the top protected and normal people being asked to cover them.
This is what I gleamed from the hours of news over the last few days. Someone who actually knows their stuff may be in to tear this apart and I’ll be reading it with interest because at this stage it’s so complex most people don’t actually know exactly what any of this means.
Ireland’s low-tax rate makes money for Ireland - companies from all over the world come here to operate.
Raising our porporate tax would most likely lose us money - we would not be in a better financial position if we raised it.
I think that in the long run, having a common currency and banking system will mean that inevitably the EU will end up dictating it’s member countries’ government budgets and therefore their internal politics. “Sovereign” is a fancy way of saying that you’re prepared to say “F-U” to the rest of the world, and clearly most of the nations of Europe are no longer in a position to do that.
Here’s the thing about improving your economy though lower corporate tax rates: Most of your growth is at the expense of contraction elsewhere (in the E.U., mostly from London). Just lowering corporate tax rates doesn’t really promote a whole lot of new economic activity that would not otherwise exist, you’re just undercutting London and taking some of thyeir cake while creating very little cake of your own. You’re not really winning business based on any sort of organic competitive advantage that improves productivity.
And that’s fine, but all of that new growth flees from your borders when people sense risk. If you want long term sustainable growth, the growth must be based on real economic advantages (lower tax rates might give you the ability to develop those advantages but in the long run it doesn’t work. London lowers its tax rates and all those businesses leave Irealnd for London as quickly as they left London for Ireland (probably faster).
Irealand was a bubble economoy based on a race to the bottom tax strategy, it was only sustainable because other countries didn’t feel the need to chase Irealnd’s tax rates.
I don’t think London’s problem with Irish tax-rates is so much a ‘race to the bottom’ thing as it is that much of the time Ireland was keeping its tax-rates low, it was also having its spending subsidized by EU transfer payments (and now by EU bailout money). So Ireland could simultaneously attract businesses by keeping tax rates low and by having a well funded education system, infrastructure, etc. paid for by gov’t spending. Most countries have to choose one or the other, which would normally even the playing field between lower and higher taxed countries.
But in anycase, as others have said, its not exactly the time for Ireland to reassess its tax structure if they can avoid it. And the EU’s bailout does in fact allow them to avoid it.
We pwned you for 800 years, and now we’re going to pwn you again!
Soz
Is it time to invest in Irish real estate? Usually, bubbles are followed by busts, where values go all the other way-so would it be a good time to pick some property for cheap?
Too bad that Ireland doesn’t have its own currency, it would make real estate investing even more attractive.
I don’t know about that. The Irish property bubble was a humdinger. I was reading something today which reckoned that prices still have 50% to fall. Based on rental yields vs. current prices on a typical Dublin property, i.e. real economics reasons rather than crazy bubble valuations. Maybe it’s worse in Dublin than elsewhere.
It’s a terrible situation, lots of young people getting trapped in negative equity for years now.
You could probably buy a bargain of a house in a couple of years in a place you wouldn’t want to live like a rain sodden ghost estate in a less picturesque part of the Midlands, ill serviced by public transport or amenities.
You saying the land is full of ire?
Ireland is trapped with deflation and low economic growth. The government is cutting spending but revenues are falling by more or less the same amount. And their answer appears to be to load more debt onto the taxpayer. They’re going to have to restructure their debt sooner rather than later, and do so in an orderly way that’s coordinated with other eurozone disaster areas, or they’re going to be in more and more trouble.