Free Ireland Economic Crisis Essay Sample
In the advent of the global economic crisis, Ireland was one of the worst hit Euro zone nations. Ireland's once flourishing economy was unable to hold its ground with the exposure to the market vulnerability due to its interactions with the EU and poor policing as the main factors blamed for the economic and political slump that engulfed it in 2008 to 2011. During the time in which Ireland joined the EU in 1973 alongside Denmark and the UK, her economy was struggling, registering high levels of unemployment and low levels of income. Its incorporation into the EU saw the reaping of benefits from the participation in the single market alongside other funding programs. In addition the highly educated workforce comprising mostly of young, highly educated persons and investments from a myriad of multinational companies transformed the Irish economy to a highly advanced technological economy. This heralded an era of economic prosperity beginning mid-1990's which was largely boosted by the large scale foreign investment as well as the rise in exports. The rise culminated in an all time high GDP which averaged at 6% in the period 1995 to 2007 that catapulted the Irish economy to one of the richest in the EU (Dellepiane, 2010, pg 12).
However, the gains made have been overshadowed by the effects of the global crisis which hit Ireland at a time in which a perfect balance within the financial and property sectors was imperative. The economic activity shifted to construction and financial sectors leading to the surge of housing and credit activities and subsequently posting unprecedented inflation rates. In 2008, the Irish government had to grapple with a falling GDP with a figure of 7% in slump posted in 2009 as compared to 3% in 2008. In addition, domestic consumption, foreign and domestic investment as well as consumer spending drastically dropped to an all time low. The government was unable to establish even the pre-crisis levels and debts increased with the Irish finances dramatically deteriorating and the government's deficits emerging and escalating to unimaginable quantities. To attain stability and quash the challenges presented by the down turn, the real issues that Ireland ought to strategically face include stabilizing the financial sector, perfectly handle the issues encapsulated in the property bubble, develop efficient strategies capable of dealing with the high rate of unemployment as well as win back investor confidence via concerted attempts in ensuring public finances are on a sustainable track. However, to be able to achieve this, retracting and establishing what went wrong will be imperative not just for the alleviation of the situation but also for preparation in anticipation of likely crisis in the future.
The government is the biggest player in establishing and maintaining a highly productive environment for investments to flourish. The shift to real estate as well as the credit sector should have been paralleled by adequate strategies to shield the economy from likely events of downturn. In addition, the government ought to be adequately prepared for the aftershocks of any imminent down turn. The Irish Government failed miserably in this calling and in fact did play a role in the escalation of the effects of the downturn on the economy of Ireland (Marton, 2010, pg 24). The Irish Government had weak fiscal policies as well as institutions that could have shielded the economy. To cap it all, the government under the leadership of Brian Cowen put up an eschewed show in confronting the crisis. The monetary institutions hereby represented to a large extent by the Anglo-Irish Bank, used reckless speculations which later had the most negative impacts as it turned into the worst banking crisis in Ireland. In addition, the governments use of tax payers' money to bail out private institutions. The passing on of the burden to the tax payer meaning that the taxpayer had to pay for the underwriting of the deposits and obligations of the Anglo-Irish bank via NAMA (National Asset Management Authority) has been highly castigated though it seems the only possible way to bail the Irish economy out of this crisis. In addition, the Irish governments' sentiments on the leaked information on secret negotiations between Dublin, the EU, IMF and European bank were perplexing to ay but the least for a country whose residents had grown weary of the rising cost of living (Dellepiane, 2010, pg 15). The government at first denied the negotiations for the bailout only to later be established that an amount in the range of $120 billion was in the equation. The actions of the government were flimsy if not incautious.
The fiscal obligations endowed on the populace have been totally unbearable. The efforts to effect cuts on public spending and tax increases compounded by the increased spread in government bonds as well as the cost of bank bail out surely is weighing heavily on the poor and unemployed. The Irish citizens now have to shoulder the demands of their everyday life as well as have something in excess for the sake of the economy. Unfortunately, as Ireland continued to swim in the murky waters of economy downturn, the politician's antics in the push for change could only affect the economy in the negative. The rise of political upheavals, demonstrations, and protests by the civilians can only fuel animosity for a country with huge class divide, where the wealthy belong to the ruling class. The high unemployment rate, projected at 13.6 in 2006 resulted into emigration with about 50,000 people believed to have left Ireland in search of better lifestyles in countries they believe were not hit as hard by the downturn. In addition, homelessness, juxtaposed with the demolition of housing units ostensibly accused of contributing to the reduction of house pricing will likely characterize the period of recovery, projected to be the next five years since 2011. Debt and mortgage repayment has been singled out as the major challenge that most families are facing with the Electricity Supply Board disconnecting a god number of customers due to highly accumulated bills.
To win back investor confidence, Ireland ought to ooze prosperity if not assure of credible policies that shield the economy from even the slightest slump in the market. Mallon (2011, pg 2) observes that this will surely be evaluated on how the bail-out funds will be used, an exercise projected in 2009 to cost about 50 billion pounds which translates to 32% of Irelands GDP. The intervention of Germany in November 2009, though aimed at asserting Germany's authority, should have been a welcome relief to Ireland. In addition, albeit the withdrawal of cash by customers of corporate standing from Irish banks, it is imperative that exquisite institutions and policies should replace the skewed performing policy makers so as to drive the best policies which have at heart the concerns of the republic of Ireland and not to serve the wills and whims of the ruling class.
The EU has not been spared as Ireland continues to be thrust into the limelight. The failure of Ireland to shield itself from the monetary risks it was exposed to points to one of the loopholes of the EU agreement; and is extrapolated on the EU decision to give individual nations permission to exercise control over their income and expenditure strategies. Though the EU offered Ireland $700 billion for the bail-out, its role in the downfall of, not only the Irish but also Greek economies, point out to the number of loopholes which ought to be sealed in the EU partnership deal. In addition, the crisis tests the resolve of the Euro zone as an economic and political entity while also exposing the foreign investors to the Irish debt. In line with this, the calls by German and France to Ireland which sought to raise the corporation tax were met with opposition from United States. Germany and France sought to have the corporation tax from 12.5% to a range within that of the US which stands at 35% or that of Germany at 29%.
The bail-out packages offered to Ireland is aimed at saving the Euro zone or safeguarding a country's interests. Britain, owing to the political interests in Ireland also came to the rescue of the Irish, channeling 7 billion pounds through British Chancellor Osborne in the form of bilateral loans. In the light of this generous offer is the realization that British exports to Ireland are very popular and indeed hit the 36 million pounds mark in 2009 (Dellepiane, 2010, pg 12). in addition, the British have financial interests in Ireland because two banks (Royal Bank of Scotland and Lloyds Banking Group) are exposed to Irish debts. The government envisions a four year plan which will be executed in collaboration with the IMF and EU. Leaving the corporation tax at its current rate, the plan is aimed at reducing deficits by 15 billion pounds, increase public spending and reduces taxes.
In come the financial institutions. Even from the Great Recession in America, the implication that big banks cannot be allowed to fail has been created. In the case of Ireland, it was a fight with time to save the Anglo-Irish Bank. The Anglo-Irish bank had paddled into these murky waters through the issuing of fast and loose loans to persons it had yet established whether they were in a position to pay. For banks to operate in a healthy environment, it is imperative that they espouse a perfect awareness of the operational costs other wise they risk running out of business especially in the case of a credit crunch. The monetary policies of the government as well as he spending habits of the people are thus put into big questions and the question of spending within the means arises. Why would a bank of the caliber of Anglo-Irish have to burden the citizens in a case which could have been easy to prevent?
The government formation of a 'bad bank' which has often come into castigation especially by the Irish opposition was a last plunge effort aimed at dealing with the problem once and for all. The government envisioned a scenario in which the tax payer would chip in and alleviate the situation, a miscalculation though because the Irish government never expected the problem to run for such a long period of time. This was enabled through the formation of the NAMA (National Asset Management Agency) which would aim at taking the toxic bonds on behalf of the banks. This would keep the banks running and at the same time operating in the areas of the credit and loan creation, a miscued calculation especially for a country plunged deep into the murky waters of economic trouble.
The banking crisis would be more than earlier anticipated. The push, which was backed more by politicians rather than economists. The Finance Minister, Brian Lenihan, stated that the Anglo Irish Bank alone would be receiving form the taxpayer's kitty funds to the tune of 10 billion pounds aimed at covering the losses of the Anglo-Irish banks. The biggest fault in this venture was the lack of transparency which later meant that the government had to admit that the discounts were flowing in a level worse than the one earlier anticipated. This increased chances of the need for a further $43 billion whose purpose would be to strengthen the claim; otherwise the initial money injected to the bank would be proved an effort in futility. The impacts of paying the money especially to the already burdened tax payer was weighing heavily on the middle class and poor society from whom most of the revenue was collected through goods or services they procured either from government agencies. The fact tat the taxes had to be increased to cater for the rising need for a bail-out meant that the living standards of the people became completely skewed and thus represented the fear of the any that the political class didn't care much about the welfare of the economy nor for the people they ruled.
Another notable government intervention was the reading of the emergency government budget on July 2008. The declaration of the recession had been overshadowed by the government's claims on its intent to bring forward the 2009 budget reading to a date as early as July instead of the usual December Reading. This uncharacteristic move was asserted by the governments claim that there had been a significant drop in continental economy and thus it would remain imperative that the government ensure well structured and tailored spending mannerisms which conform to the austerities of the changing environment. The budget raised eyebrows from many quarters especially the proposals to impose income levies on employed persons, a clause that was later repealed. In addition, the budget withdrew the proposal for the purchase of HPV vaccines for schoolgirls. The cutting of military expenditure via the closure of some barracks within the country was also one of the radical measures adopted by the Finance Minister. Medical cards were to be revoked and the waiver of university fees rebuked.
Consequently, the citizens would make do without free university education as well as medical services. Feeling hard hit by the government policies, peasant farmers and teachers took to the streets to protest against what they inferred as double standards. In October 2008, pensioners and students unitarily called for free education, terming it as a right and not as a privilege. In addition, the policies adopted in the government forced a fall out with unsatisfied persons claiming to have been short changed and the government was faced with high profile defections. At a time when support was essential to ensure that bail-out bills were smoothly adopted in the legislature, these defections left the government in a precarious situation especially considering the number of persons within Ireland who were opposed to the manner in which things were being carried out.
The role of EU, IMF and the EFSF (European Financial Stability Facility) to the recovery of Ireland would be vital. The provision of funds, which these institutions can loan out to nations was an idea floated by the European Central Bank and one that it advocated for lest the effects of the crisis spillover to other European nations. In addition, Ireland is perceived not only as a strong labor point but also as a huge manufacturing centre due to the low corporation charges. The Irish request was received with enthusiasm by all EU finance ministers. Through lengthy weeks of discussions, a loan in the excess of 100 Euros was agreed as the amount that would be provided to Ireland with England providing approximately 8 billion Euros. Ultimately, it was agreed that 85 billion Euros be released to Ireland in the rescue plan, most of which was in the form of bilateral loans from UK, Denmark and Sweden. The first 3.8 million euros was sent by February 2011, and work of economic recovery had already commenced.
In the ensuing years, the opposition has sought to dislodge Brian Cowen from power. The main man has been John Gormeley whose popularity is based more on his radical nature, something that is less likely to attract more investors to the Irish nationbecause it is quite important that all avenues via which the nation can raise any money it should be utilized to the minimum. In light of the prevailing economic conditions, the establishment of a politically stable government would usher in a contraction of -0.9%. However, the prospects for the year 2011 go as far as an estimated GDP growth of 3.0% to -1.25% within the range as set by the EU. The government deficit is projected to improve from 14.3% GDP in 2009 to 12% GDP in a span of a year up to 2010 and an increase slightly above that in the subsequent year. This process is projected to continue till 2014 and represents three austerity packages per year.
This amount will also have cuts of 760 million euros for social welfare and 960 million euro in investment projects as well as the pay cut for all public servants of about 5%. However much this is going to impact on the eventual recovery of the Irish economy, political and financial measures should also be seen to project an intelligent vision which All factors held constant, the essence of social cohesion and political stability cannot be underscored. Foreign investors can only be wooed to an environment conducive to their operations. In addition, the political structures ought to espouse a high degree of transparency and deviate from the corruption acts they have come to be associated with. In addition, efforts to bridge the broad gap between the poor and the rich should be in-calculated into the governance system so that disparities do not leave persons, especially the majority exposed. Finally, a sobriety mood should characterize the politically ambitious citizens to formulate policies not aimed at winning them power but also aimed at checking the economy of the republic and catapulting it to unprecedented levels of success.