Ireland was regarded as the poster child for a booming economy. When period houses in Dublin were selling for over a million euros in 2007 it was regarded as good news, there was no reference to first time buyers left stranded as the first rung remained out of reach. House prices have collapsed by 15.5% in Ireland year on year and by as much as 50% from the peak of 2006 in certain areas.
The Irish economy boomed due to the dense mass of new liquidity being pumped into the country’s economy by way a housing and construction boom. In hindsight it was all so childlike in it’s simplicity; the Irish embraced the “build it and they will come” philosophy with a hunger only the Spanish could replicate. Banks created money, builders borrowed money, built houses, created employment in that sector, workers can then bought houses, houses go up in value and the wheels keep on turning..until the music stops.
Ireland is now hollowed out, there are huge new build estates laid to waste and the population is once again on the move in numbers not seen since the depths of the 1980’s. In Ireland, where 14.5% of the population are jobless, emigration has climbed steadily since 2008, when Lehman Brothers collapsed and the bottom fell out of the Irish housing market. In the 12 months to April this year, 40,200 Irish passport-holders left, up from 27,700 the previous year, according to the central statistics office. Irish nationals were by far the largest constituent group among emigrants, at almost 53%.
A journalist at the Guardian Helen Pidd, has been looking at the impact the economic woes of the eurozone are having on migration.
Tens of thousands of Portuguese, Greek and Irish people have left their homelands this year, many heading for the southern hemisphere. Anecdotal evidence points to the same happening in Spain and Italy.
The Guardian has spoken to dozens of Europeans who have left, or are planning to leave. Their stories highlight surprising new migration routes – from Lisbon to Luanda, Dublin to Perth, Barcelona to Buenos Aires – as well as more traditional migration patterns.
This year, 2,500 Greek citizens have moved to Australia and another 40,000 have “expressed interest” in moving south. Ireland’s central statistics office has projected that 50,000 people will have left the republic by the end of the year, many for Australia and the US.”
Evolving from poster child of the Eurozone boom to ‘l’enfant terrible’ inside three years has not been a straightforward metamorphosis for Ireland. Many politicians, such as the now UK chancellor George Osborne, had previously praised Ireland’s growth, then Ireland became the poster child for a new phenomena, austerity. The very politicians who had previously praised Ireland’s stellar economic growth were now extolling the merits of its prudent fiscal discipline.
Until recently the country was being lavished with praise as a shining light example of how to cut expenditure and live within the means of a harsh austerity budget. Ireland was being tipped as the austertical technocrats model of how efficiency, in terms of fiscal prudence, can and does work..and then we got some numbers that really hit hard as to how severely and quickly the economy has been decimated. When you consider just how much column space and mainstream media broadcasts were given over to Greece and Italy’s velvet revolution and over throw by banking technocrats it was strange how little space was given to Ireland’s economic collapse.
Ireland is relying on export growth to reignite the economy, which has shrunk about 15 percent since 2008, as consumers rein in spending. The economy has shrunk by an unthinkable 1.9% in the third quarter of 2011, this from a position of apparent 1.4% growth the previous quarter. The economy swung by 3.3% inside three months, this is quite simply a stunning u-turn in economic terms. But how surprising was it?
The generally agreed-upon limit for persistent government deficits is 3%. It’s the basic rate of GDP growth that history has shown to be sustainable. If deficits are growing at the same rate as the economy, then the debt-to-GDP ratio stays constant and everybody is a winner. If the economy grows more slowly than the rate of interest that is demanded from a government, it’s a mathematical certainty that either the deficits will swell or austerity and/or tax hikes must be imposed. There is no other way to balance the books. With Ireland’s deficit at circa 10% it’s increasingly difficult to visualise how that gap can be filled without further, harsher austerity measures.
Many commentators, respected economists and analysts had suggested that cutting too deeply and quickly would smash apart the delicate microcosm of certain economies, in Ireland the austerity punishment inflicted was eye watering. Unlike the UK, were civil servants will see their pay freeze, their Irish counterparts saw their jobs closed and wages slashed. And civil servants whose wages are slashed by between 5-8% for those on median salaries, or up to 15-30% for those on bigger salaries, in an economy suffering from a reported 3% inflation, don’t buy the brand new empty houses littered on the picture perfect estates in the green and pleasant counties of Eire. Were Ireland leads Greece Italy and others will follow. In 2009 the hope for Ireland was that it could avoid a bailout if it put in place certain austerity measures. That economic text book theory failed and the bailout followed.
If Ireland doesn’t return to moderate growth by 2012 and instead enters into a deep recession then the austerity measures will have been rendered pointless particularly if, as many economists have continually suggested, better results could have been achieved through a combination of debt forgiveness and renewed lending directly into the economy.