Ireland's economic miracle was a mirage and it should consider leaving the Euro say two leading economists writing in The New York Times.
They also say Ireland's real economic situation is as bad if not worse than Greece when you take multinational tax havens out of the equation.
Simon Johnson, former chief economist at the International Monetary Fund, and Peter Boone of the London School of Economics say that "Ireland’s politicians, rather than facing up to their problems, are making things ever worse. Simply put, the Irish miracle was a mirage driven by clever use of tax-haven rules and a huge credit boom that permitted real estate prices and construction to grow quickly before declining ever more rapidly.”
They claim that "Ireland’s problems are, sadly, far deeper than the need for simple fiscal austerity. The Celtic Tiger’s impressive reported growth over the past decades was in part based on its aggressive attempts to help major corporations in the United States reduce their tax bills.
"The remarkable success of this tax haven means that roughly 20 percent of Irish gross domestic product is actually ‘profit transfers’ that raise little tax for Ireland and are owned by foreign companies. Since most of these profits are subject to the tax code, they are accounted for in Ireland where they are lightly taxed; they should not be counted as part of Ireland’s potential tax base. A more robust cross-country comparison would be to examine Ireland’s financial condition ignoring these transfers....
“When we adjust Ireland’s figures accordingly, the situation is dire. The budget deficit was about 17.9 percent of G.N.P. in 2009, and based on European Commission data (and assuming the G.N.P.-G.D.P. gap remains the same) it will be roughly 14.6 percent in 2010 and 15.1 percent in 2011.
“There is no simple escape, but if the government hopes to avoid a sovereign default, the one overriding priority should be to stop bailing out the banks. Instead, the government should wind down existing banks in a “bad bank,” while moving their deposit base and profitable businesses into new, well-capitalized banks that can function without a taxpayer burden. This will be messy, but it is far better than a sovereign default.
“Finally, the Irish need to consider seriously whether being in the euro zone is worth the cost. The adjustment to this awful situation would be far easier outside the euro zone — even though leaving the zone might have adverse repercussions for other nations. Once again, a comprehensive program with European Union and I.M.F. support might make this the least worse option.”
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