Why Is The Irish Economy In Such A Mess?
In the late 1990s and early 2000s the Irish economy was referred to as the Celtic Tiger. Phenomenal growth in GDP occurred year after year, fuelled by high tech, service and construction industries. Anyone who visited Dublin in the past decade will have abiding memories of the city looking like one massive building site. Ireland had a highly educated population to provide the workers in these industries, 90,000 jobs were created every year and the country imported large numbers of workers from all over Europe to keep up with demand for skilled labor. Now, in 2011, the economy has all but collapsed and at the end of 2010 the Irish government had no other option but to ask for a multi billion pound bail out from the International Monetary Fund and the European Union. So where did it all go wrong?
To begin with, The Republic of Ireland is a relatively small country, with a population of 4.4 million, making it smaller than Scotland with 5.2 million inhabitants or Switzerland with 7.7 million. Whereas economies of other countries in Western Europe had a variety of strengths, Ireland focused far more heavily on finance and construction to fuel economic growth than on manufacturing. The Irish went property mad, and Irish banks were falling over themselves to lend to customers to allow them to get involved in the property market and get their foot on the ladder. Credit was given without sufficient checks as to whether the customer would be able to repay, as was the issue with many other banks. When the credit crunch happened in late 2008, Irish banks found they were particularly exposed in their mortgage market. As in the UK, the Irish government had to step in and bail them out. However, unlike the UK, which has seen relatively modest decreases in house prices, in Ireland house prices have been decimated, falling by almost half in some areas. Thousands of borrowers are trapped in a house worth far less than they paid for it, and banks have no hope of recouping their money should the borrower default. The construction sector, which once employed almost one in four Irish workers, has ground to a complete standstill, evidenced by the estimated 300,00 houses across the country which are either standing empty or half built.
The Irish government are making tough decisions about how to claw their way back from the precipice and cuts have been far more severe than in the UK. Sales tax has been raised and will increase by 1% for the next two years, minimum wage was slashed by 1 euro per hour and almost 25,000 jobs are to go in the Irish public sector. Economists are predicting many years of hardship ahead for the Irish due to the severity of the economic woes. Many ordinary Irish people, however, are not sticking around to see the impact of these cuts, and almost 3,000 per month are packing their bags and leaving the Emerald Isle for good.
Guest blog written by Ben who works for Simply Stock Broking - leaders in online trading.