Ireland Calling by John Spain
The Irish side of the Greek economic tragedy
Posted on Wednesday, May 05, 2010 at 12:07 PM
- "Greed is good", especially in Ireland it seems with pillars of society on the take
- Vintage pamphlets offer a glimpse at the rules of 50s-era Irish Catholicism
- A leap of faith by Ireland, the exit from the IMF/EU bailout
- A temporary detour from ecomic issues to Irish soccer madness
- Give Britain a break after decades of Irish emigration to the UK
In the old days when times were tough, Ireland was sometimes referred to as the place where people kept pigs in the kitchen. Any reference to our pigs in the kitchen tendency was a serious insult, of course.
But these days, it's worse. Never mind pigs in the kitchen. Now we ourselves are being called pigs!
The only consolation is that we are not alone. The PIGS is the way the international money men now refer to the basket case economies of Europe --- Portugal, Ireland, Greece and Spain.
Sometimes they spell it PIIGS, with the extra I being for Italy. But we are definitely in there, thanks to the severity of the crash that followed the boom in Ireland, the collapse of our tax revenues and the yawning budget deficit that opened up here.
Basically, like the other PIGS, we have been going bankrupt and fast. In Ireland the state spends €50 billion euro a year but gets in only €30 billion in tax.
That's give or take a few billion. The €20 billion gap has to be borrowed, and obviously you can't keep doing that for more than a few years without burying the country under a mountain of debt.
In fact, what would happen is that as a country we would go bankrupt. Or to put it more precisely, the money markets would no longer buy our government bonds and so we would be unable to raise enough money to pay the salaries of state workers like teachers, nurses, police etc.
We would be unable to go on paying welfare to all those out of work. And we would be unable to pay for all the state services that people these days take for granted.
If that were to happen, the country would go deep into recession and as state services collapsed civil unrest would follow, a doomsday scenario.
The only way to avoid such a national implosion is to cut back state spending so that at some point in a few years time our spending is likely to be back in balance with our tax income. Or at least the gap won't be so alarming.
As long as the markets see we are heading in that direction they will be happy to lend to us, because they will feel confident of getting their money back at some point in the future.
That is why the Irish government is now nearly two years into a program of cutbacks. A few billion was cut from spending last year, with some of the savings coming from trimming back the very generous pay and pensions that Irish state workers get.
Another few billion has to be cut this year and next year and even the year after that. And obviously it's going to get harder each time to find ways to cut.
But the Irish government is doing it because there really is no alternative. The cost to Taoiseach (Prime Minister) Brian Cowen and his government has been huge.
The cutbacks have made this administration so unpopular that the latest national opinion poll last weekend shows Fianna Fail now in third place, behind Labor, with the lowest approval rating in its history.
No government would do this willingly, because it's political suicide, but as I said there's no other way out. The situation is so serious that Cowen has to put the country before his party.
As for the people, no population would accept the cutbacks we face, if there was an alternative. The Irish government has been able to make the cuts, so far anyway, because deep down most people here understand that it is necessary. They don't like it and they argue about the detail and about how the burden is being shared, but they accept it as inevitable.
So we have a real chance of coming through this without tearing ourselves apart. And if we need a real life reminder of what the alternative is, all we have to do these days is turn on our TVs and watch the news coming from another one of the pigs, Greece.
Now it's a long time since I was over there, not since my long-haired student days when the favorite way to spend summer was hopping from one Greek island to another.
Apart from the sunshine, I remember the ouzo, the slow pace of life, the men sitting outside the coffee shops all day twirling their worry beads (although what they had to be worried about was beyond me). Even Athens was laid back.
It turns out, in fact, that the whole of Greece was far too laid back, and it doesn't seem to have changed much over the decades since. They've been spending much more than their taxes warranted and the result is that they are now in financial crisis, with Greece having built up a debt mountain of an incredible €300 billion euro.
They have also been running a big budget deficit recently, which means the debt mountain has been getting bigger at an alarming rate.
Over the past few weeks, the money markets decided that enough was enough. Last week a leading ratings agency classified Greek bonds as "junk.”
So they had reached the end of the line. Unable to borrow more, they faced a very real crisis.
In the old days when a country got into difficulty it would devalue its currency. But Greece is now part of the European Union and its currency is the euro, so devaluation is no longer an option.
Its collapse would threaten the future of Europe as a single currency area. So the big boys from the EU and the IMF piled into Greece a week or two back to sort out the mess.
What they came up with was an arrangement for Greece to borrow another €110 billion over the next few years, on condition that it starts cutting spending, raising taxes and generally getting the state finances under control again. Ireland's share of this rescue package for Greece is over one billion, all of which will have to be borrowed.
And yes, it's hilarious that poor old Ireland should be rescuing anyone given our problems, but it makes sense. If Greece were to go under, Portugal and Ireland would be next in the firing line of the money markets.
There has been a lot of superior talk here last week about how we're not like Greece. Such comparisons are not only inaccurate but dangerous, the government says.
But what we should really be saying is, there but for the Grace of God and the good sense of most of the Irish people goes Ireland. The similarity is too close for comfort.
Our national debt is only around €100 billion, in comparison with Greece's €300 billion, but then we have only half the population. Also our debt has been climbing fast and our budget deficits in percentage terms are not that different to the Greek deficits.
The big difference is the apparent public willingness of the Irish people to face up to the situation. Instead of facing reality the Greeks, as you will have seen from the TV news in the last few days, have been tearing the country apart with street battles, strikes, the shutdown of schools and services, even occupying the Acropolis!
They've been acting like spoiled students from the 1960s who want to have a revolution while Daddy pays the bills. Mind you what they're faced with is tough.
It is estimated that many state workers in Greece have lost 30 percent of their income since cutbacks started a month ago, and now there is more on the way. Part of the problem is the huge number of people on the state payroll, so big even the government has lost count.
A huge problem is the inefficiency and corruption, so even though state spending has vastly increased, services are not much better. State workers in Greece get long holidays, have short working days, and get all kinds of bonuses and perks.
Some get special payments for using computers! Forestry workers get a bonus for working outdoors!
To get state services (like seeing a doctor without a delay of months) you pay a small bribe. There is so much petty corruption that an estimated €800 million of bribes was paid to state workers last year.
Many civil servants have been allowed to retire on a guaranteed pension at 50 (under the new deal they will have to work until they are 67). All of this has been a huge drag on the real economy in Greece where, apart from tourism, there has been little development and where jobs are scarce.
Those who do have jobs or small businesses have been dodging their taxes (one estimate is that 30 percent of earnings in Greece are in the black economy) which has meant that tax revenues are much lower than they should be. And to keep all this mess going, the Greek government borrowed heavily in recent years and spent like there was no tomorrow.
Well, tomorrow has come now. The modern day Greek tragedy of running battles on the streets of Athens at the weekend sends shivers up the spines of the authorities here.
It's already causing us problems because the cost of borrowing for us has gone up thanks to nervousness about Greece. Last week the cost of new funds for us was pushing 6 percent, whereas Germany pays just over 3 percent (Greece was paying 9 percent).
There's a message in all of this for Ireland. To avoid a similar crisis, we have to take the pain and keep to the program to get our state finances back in balance again. The alternative is an Irish version of the Greek tragedy.