Ireland to go bust

[RandBlade]

Its looking increasingly likely that Ireland will be the second Eurozone nation of the "PIIGS" group to go bust.

Portugal, Ireland, Italy, Greece and Spain are all eurozone nations that for different reasons are collapsing under a mountaing of bad debt that the government can not repay, which through the Euro have been tied together with about a dozen other eurozone nations. Greece went bankrupt earlier this year and had to call in Euro and IMF support, now it seems Ireland is almost inevitably next.

Its a tragic end for the "Celtic Tiger".

When Hazir and I started debating the pro's and con's of the euro back in 2001 I was someone who politically wanted the euro, I liked the idea of just one currency, but was economically nervous about it. The more I learnt about it - and the more Hazir spoke about it being a political not an economic decision which was absurd - the more I turned against it.

The euro is largely responsible but for opposite reasons for the collapse of both Greece and Ireland. For Greece, a weak economy, they needed low interest rates/devaluation etc to cope. Not an ideal situation but what was required.

For Ireland, a really strong and booming economy until recently, they needed high interest rates.

Instead it was "one size fits all" (or nobody) and Ireland had an interest rate far, far, far too low. Causing a massive boom in unsustainable property prices. Now that ridiculous bubble's burst, they're bust. Simply wouldn't have happened the same way had interest rates been correctly set for Ireland individually.

In 2006 Ireland's "growth" rate was 6%, inflation was 3.875% yet the eurozone's rates were 2.25% - so at the peak of an unnatural boom for a developed nation they had essentially negative interest rates! Of course Germany had a growth rate of 0.9%, inflation of 2% so an interest rate of 2.25% made sense for them, but not for Ireland!

[Dreadnaught]

Besides the economic damage this will do to Irish families, I'm concerned a bailout of Ireland will come with strings demanding Ireland remove the tax policies that have made the competitive.

[RandBlade]

That's definitely going to happen

France and Germany etc will insist as conditions of any bailout that Ireland jacks up its corporation tax rate, the one attractive thing that brought companies to Ireland. Totally ironic isn't it, it was the low corporation tax that allowed Ireland to do well, it was tying to Germany while doing well that has brought Ireland down ... now they need German help and they'll insist on removing the one thing that made Ireland do well in the first place (ie made them more competitive than Germany and France etc). It won't be of any concern for Ireland that results in their corporation tax going up.

[Dreadnaught]

I wonder if the Irish will recognize that and bluff. We'll raise other taxes, but we will still keep the corporate tax rate lower than yours because it's allowed us to become a tech center unlike you. You don't want to bail us out then? Okay, let's see how your bond markets like that.

[RandBlade]

He who pays the piper calls the tune.

[earthJoker]

France and Germany etc will insist as conditions of any bailout that Ireland jacks up its corporation tax rate, the one attractive thing that brought companies to Ireland. Totally ironic isn't it, it was the low corporation tax that allowed Ireland to do well, it was tying to Germany while doing well that has brought Ireland down ...

Without the help of the EU (aka Germany's money) they couldn't have such a policy in the first place.

[Steely Glint]

awww jayzuz we're gonna be bankrupt so we are

[Hazir]

Which eurozone country has gone bust before? I don't remember any going bust at all. As has been said, the Irish have had a party at the expense of other countries, now they're going to dance to another tune not of their own choice and probably liking.

[Dreadnaught]

How do you define the "at the expense of other countries" part?

[LittleFuzzy]

How do you define the "at the expense of other countries" part?

Ireland got companies to set up there rather than with their social superiors by looking more attractive, the slutty tart. It didn't maintain its proper station and now it's going to be put in its right proper place.

[Dreadnaught]

Indeed, it's payback time for those skanky competitive tax rates.

[Nessus]

Stalin's dead, guys, you don't have to pound on socialism like the jail-house cougar she is

That said, I'm concerned about this cycle of Euro periphery nations failing and expecting the monetary union to back them up. Germany and France should push for harder solutions; if Spain goes dominoes after Portugal the whole currency is fucked, and this is after we agreed to bring in third world Balkans from Eastern Europe. If there's no option to shove nations out of the Euro, things are gonna get messy.

[Loki]

The irony is that the Eastern Europeans had to actually meet the criteria to get into the euro, which means they're generally in better financial shape than the South Europeans (and Ireland).

[earthJoker]

Indeed, it's payback time for those skanky competitive tax rates.

I am all in favour of competitive taxes. But the game Ireland played was risky from the start. Make tax cuts just to bring in HQs and offices from internationals isn't really a long term strategy, they go as fast as they come. The goal of a country should always be to have the best environment for the whole economy. Opening new HQs is probably a good PR stunt for the politicians, though.

[Dreadnaught]

To be honest, I don't think some of the major companies who opened HQs there are leaving anytime soon. The promise of long-term low rates has made a ton of tech companies set up shop there.

[earthJoker]

We will see.

[Khendraja'aro]

So, you have a bunch of companies who pay next to no taxes. That benefits the country exactly how in the long term?

[Loki]

So, you have a bunch of companies who pay next to no taxes. That benefits the country exactly how in the long term?

Income taxes, increased productivity, higher exports.

[wiggin]

I think Ireland's case - even better than Greece's - illustrates the problem with the Euro. Greece just spent freely with other people's money, but Ireland has a viable growth model - low corporate taxes leading to high FDI. The problem is that this growth model didn't have the same business cycle as most of the big Euro economies.

A few years back, Ireland had incredibly high growth (and relatively high inflation) due to their growth strategy. But because the euro's monetary policy was set far away from Dublin, real interest rates in Ireland were effectively negative (e.g. borrowing euros cost less than inflation there). If Ireland had an independent central bank, this would have been a perfect time to raise interest rates, but they couldn't so presto - they blow up a huge bubble that completely trashes their economy, especially the financial sector.

[RandBlade]

This nonsense from a couple that their corporation tax rate was unsustainable etc is just that, nonsense.

It is not companies leaving (yet) or not paying taxes that is the problem, it is debt. Taking the banks into account this year their deficit is a whopping 32% of GDP. It is the low interest rates that is responsible for the enormous bubble that has now burst to such devastating affect.

Hazir, Greece was the last nation to go bust and don't play games trying to deny it.

[Crazy_Ivan80]

large economic entities will always have differences in their economic cycles. Hell, even smaller entities have it. And yet you don't see individual provinces setting interest rates.

anyways, the euro will survive in some form and the Germans will end up running the EU and Europe, as is proper.

[wiggin]

large economic entities will always have differences in their economic cycles. Hell, even smaller entities have it. And yet you don't see individual provinces setting interest rates.

Yes, but in most large common monetary unions (e.g. the US), most macroeconomic policy is set for the entire country - import duties, taxes, etc. - and most of the automatic stabilizers and fiscal stimulus is also arranged from one source. The problem with the euro is that Germany's economic policy is fundamentally different from that of Ireland's - or any number of other countries. If they had a common macroeconomic policy, that would be fine, but that's not how the euro works.

[Hazir]

To be honest, I don't think some of the major companies who opened HQs there are leaving anytime soon. The promise of long-term low rates has made a ton of tech companies set up shop there.

Well, Ireland offered those low rates while ALSO indebting itself to an extent that's mindbogling. Left or Right, Ireland is in no position to save itself. Allowing it to continue with its so-called competitive taxing would simply mean that the tax-payers of countries that didn't fuck up in quite the same way (I am one of those by the way) are subsidising foreign companies to set up shop in Ireland. As far as I am concerned that is a 'thanks but no thanks'.

[Hazir]

I think Ireland's case - even better than Greece's - illustrates the problem with the Euro. Greece just spent freely with other people's money, but Ireland has a viable growth model - low corporate taxes leading to high FDI. The problem is that this growth model didn't have the same business cycle as most of the big Euro economies.

A few years back, Ireland had incredibly high growth (and relatively high inflation) due to their growth strategy. But because the euro's monetary policy was set far away from Dublin, real interest rates in Ireland were effectively negative (e.g. borrowing euros cost less than inflation there). If Ireland had an independent central bank, this would have been a perfect time to raise interest rates, but they couldn't so presto - they blow up a huge bubble that completely trashes their economy, especially the financial sector.

Utter rubbish, without the EMU Ireland would have been a bankrupt state 2 years ago. The problems of Ireland have got nothing to do with monetary policies. It has to do with giving guarantees when the Irish bank sector effectively imploded that the Irish state could not, can not and never will be able to afford. There is no amount of variance in monetary policies that could have made any kind of impact on that simple truth.

[Hazir]

Hazir, Greece was the last nation to go bust and don't play games trying to deny it.

By that standard the UK has also gone bust.

[wiggin]

Well, Ireland offered those low rates while ALSO indebting itself to an extent that's mindbogling. Left or Right, Ireland is in no position to save itself. Allowing it to continue with its so-called competitive taxing would simply mean that the tax-payers of countries that didn't fuck up in quite the same way (I am one of those by the way) are subsidising foreign companies to set up shop in Ireland. As far as I am concerned that is a 'thanks but no thanks'.

That's not true, Ireland's debt-to-GDP ratio was fine until they spend a horrendous amount of money bailing out their banks. They had to do this to prevent the collapse of their monetary system brought about by a bubble financed by easy euros.

Utter rubbish, without the EMU Ireland would have been a bankrupt state 2 years ago. The problems of Ireland have got nothing to do with monetary policies. It has to do with giving guarantees when the Irish bank sector effectively imploded that the Irish state could not, can not and never will be able to afford. There is no amount of variance in monetary policies that could have made any kind of impact on that simple truth.

I agree that their debt problems are due to the bailout of the financial sector (raising a big moral hazard issue, but probably a necessary move), but those problems came about due to loose monetary policy that helped slow-growth countries but was extremely detrimental to rapidly growing countries in the eurozone. To claim that EMU monetary policy has nothing to do with this is absolutely stunning. During a period of record-high growth in Ireland, the effective interest rate was negative. How much more evidence do you need that euro monetary policy is not a one size fits all kind of system?

[LittleFuzzy]

I agree that their debt problems are due to the bailout of the financial sector (raising a big moral hazard issue, but probably a necessary move), but those problems came about due to loose monetary policy that helped slow-growth countries but was extremely detrimental to rapidly growing countries in the eurozone. To claim that EMU monetary policy has nothing to do with this is absolutely stunning. During a period of record-high growth in Ireland, the effective interest rate was negative. How much more evidence do you need that euro monetary policy is not a one size fits all kind of system?

But they should have been slow-growth like everyone else. Growing faster than someone else is stealing from them.

[Dreadnaught]

Well, Ireland offered those low rates while ALSO indebting itself to an extent that's mindbogling. Left or Right, Ireland is in no position to save itself. Allowing it to continue with its so-called competitive taxing would simply mean that the tax-payers of countries that didn't fuck up in quite the same way (I am one of those by the way) are subsidising foreign companies to set up shop in Ireland. As far as I am concerned that is a 'thanks but no thanks'.

I would argue half-jokingly that perhaps that subsidy is worthwhile given the lack of a powerful tech hub in Western Europe.

[earthJoker]

This nonsense from a couple that their corporation tax rate was unsustainable etc is just that, nonsense.

I didn't say it was the reason of collapse. I said, they wouldn't be able to run that strategy if it weren't for countries like Germany giving them the money to do so.

I would argue half-jokingly that perhaps that subsidy is worthwhile given the lack of a powerful tech hub in Western Europe.

I don't agree. The EU should have a common strategy if it wants to build up one, substitutes and competition don't go well with each other. And what do you mean by no tech hub in Western Europe? Western as in UK,France,Spain, Portugal and Ireland?

[Hazir]

The Anglo-Saxon crowd of all people thinking that the Irish have got a right to tax-money they aren't willing to raise themselves, it's quite typical again.