Hard lessons on scarce jobs


You will be seeing a lot more young Irish in the U.S. this year and next year as the decline in the Irish economy gathers pace.

Unemployment is relentlessly growing.  In fact you could say it's the only growth industry we have here right now.

I know there has been some talk recently about a few green shoots of recovery starting to peep up in the U.S. But in Ireland it's still all doom and gloom and, even worse, confusion.

There's little sign that our banking crisis is anywhere near resolution. There was some hope a week ago when the announcement was made that a National Asset Management Agency (NAMA) is to be set up to take over the bad loans from the banks.

But since then the realization has sunk in that this is no magic wand, that it will take up to a year to get NAMA started and that it is likely to face multiple legal challenges from developers who find their assets being taken over. 

So it's not an instant solution. In fact it's going to be a cumbersome giant that will hang around the neck of the Irish economy (and Irish taxpayers) for years. Even the initial process of valuing the assets (mainly undeveloped land banks and unfinished building sites) will be fraught with difficulty. 

I was listening to one builder on the radio here this week saying that recently he had got three valuations (all from expert real estate agencies!) on an unfinished construction project he has in Dublin. One expert said €2 million, another said €3 million and the third said over €5 million. That's the kind of problem NAMA is going to face, and the only winners in the game will be the lawyers.

As I was explaining here last week, whether the Irish banks remain solvent or not will largely depend on the discounted price NAMA ends up paying for the €90 billion in bad property loans it takes on. The signs are not good. 

Ireland's biggest bank is already back at the government's door this week, cap in hand, looking for more state funds to shore up its liquidity. And a few days ago, 20 of the country's leading economists signed a public letter saying that NAMA was not the answer and that the government should nationalize the big banks immediately instead of throwing even more money into them.

Meanwhile, the Irish state is out in the international money markets flogging government bonds to raise more of the billions we need to pay the bills until the end of the year. It's a balancing act, with no room for error. In spite of the cutbacks announced in the recent emergency budget, state spending here this year is still going up rather than going down. 

Which is one reason why the ratings agency Moody’s last Friday placed Ireland’s Triple A rating on watch for a possible downgrade. This follows Ireland’s downgrading by two other agencies Fitch and Standard & Poor’s, and it adds a huge amount to the cost of state borrowing here.

The solution in our recent emergency budget was to pile on the taxes rather than make enough cutbacks in state spending. And that, of course, has slowed the economy down even more, leading to more job losses.

The speed at which jobs are being lost here is scary. The figures for March show that the number of people signing on for unemployment benefit was 88 percent more than in the same month last year.

A turnaround on that scale is unprecedented here. One economist said that the reason was the shakeout in construction, which at its peak accounted for over a quarter of a million jobs, an extraordinary level in a country with a workforce of around two million.   Unlike the manufacturing industry, construction is a sector where jobs can be cut very quickly and that has been happening with the collapse of the building boom.

That amount of spending power being taken out of the economy has a devastating knock-on effect, and lower demand now means that many small businesses in Ireland are suffering badly, with jobs being lost in retailing, hospitality (bars and restaurants) and all kinds of services. 

Our unemployment rate has gone up from 4 percent just over a year ago to 11 percent today, and the pessimists are saying it will be 17 percent by the end of the year.   Even the optimists are predicting it will be 15 percent by Christmas.  

As the shakeout in construction bottoms out later this year, the rate of growth in unemployment should start to slow. But it's going to settle at a pretty high level for the next year or two, which is why I'm saying you will be seeing a lot more young Irish over there.

One of our big handicaps is that we can't do a stimulus package like is happening in the U.S. and the U.K. Why? Because we let state spending here get so far out of line that we need everything we can borrow just to keep going at the same level. 

So while President Obama is throwing dollars at the problem to stimulate the U.S. economy, in Ireland we are taking money out of the system instead of putting it in. lt's not that we're stupid. We just don't have an alternative.