Friday, January 09, 2009

The Problem is Worldwide: The Irish Economy’s Taking a Dive

Not heard of the Celtic Tiger? Another country who made financial services the centerpiece of its economy. Now things are looking glum.

From the New York Times comes The Irish Economy’s Rise Was Steep, and the Fall Was Fast:
"Everything, it seems, has grown worse here. The recession started earlier and its bite has been deeper. Housing prices have fallen by as much as 50 percent. Bank shares have plummeted by more than 90 percent. Unemployment is approaching 10 percent.

The roots of Ireland’s fall date to more than 20 years ago, when a clutch of economists, politicians and civil servants put their heads together in this very pub and planted the philosophical seeds for the Irish economic miracle.

Known widely as the “Doheny & Nesbitt School of Economics,” these beery musings soon became government policy that chopped taxes in half, sharply reduced import duties and embraced foreign investment — a radical transformation that gave birth to the Celtic Tiger and perhaps the most open and vibrant economy in Europe."

***

Ireland’s policy makers, like their counterparts in the United States and Britain, were seduced by record tax inflows and a full-employment economy. They paid little heed to the lonely voices that warned of the crash that finally came over the summer, when interest rates in Europe began to rise. Banks that had steered more than 60 percent of their loans toward property stopped lending, and asset values plummeted.

“We have repeatedly warned that the government’s housing policy was extremely dangerous,” said John Fitz Gerald, an economist at the Economic and Social Research Institute, a leading policy center in Dublin, who has long urged that the government stanch housing demand by raising taxes. “You will now see unemployment going to 10 percent and we will experience a sharp drop in output.”

He shakes his head and sighs: “This was predictable, but the government just did not deal with it.”

***

"He recognizes that the deprivation of his community is severe, but suggests that it may be an easier hardship than the experiences of many Irish who have seen their riches disappear.

“There was this one story of a guy who shot his wife, son and daughter,” he says. “He had overextended himself. There is this desperation for wealth and people go after it — only to find out that it is not enough.”"
This from the UK Telegraph comes Sir Anthony O'Reilly: the Celtic tiger reduced to pussycat:
The collapse of Waterford Wedgwood, whose clients include the Queen and Archbishop of Canterbury, has chipped away a little further at the fading reputation of Sir Anthony O'Reilly, once acclaimed by the Foreign Office as the "boy wonder" of Irish business.
The Irish Independent has its own Business year in review and Dell confirms plans to shed 1,900 jobs in Limerick.

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