ANALYSIS by Patrick English
The problems that the UK faces with debt and budget deficits are quite meager compared to those faced by Ireland and currently worrying economists across the EU. The Irish government has an underlying structural deficit (fundamental imbalance between government tax and spend sheets) of 12% GDP which is discouraging inward investment and destabilising the financial sector to an almost complete standstill, as well as the nearly collapsing the housing market. Unemployment is high, and the budget deficit (the precise amount of what a government is overspent by and therefore in debt by) currently stands at around 32% of GDP, for this year alone. A very good quality lay-out of exactly what Ireland faces financially and how that came to being can be found here on the BBC.
Yesterday Olli Rehn, the European Union monetary affairs commissioner, announced that he had held talks in Dublin over two days as was satisfied that the Irish government and parliament were doing all they could to meet the fiscal targets set out by the EU, and that they subsequently had high chances of meeting them. However, he also stated, as all aware of the situation know, that the Irish economy was still in a very fragile state, and that the EU had to make stabilising the economy their top priority, the key aspects of his address to the press can be seen here.
The EU has now opened the door to the Irish government for a form of 'bailout' handout, should they request it; lessons have evidently been learnt from the Laissez Faire approach taken toward the Greek economy when it was in a similar situation. The financial package looks appealing to those in Ireland struggling to make ends meet and business happen, but the government and parliament seem to be unfavorable towards the idea. Why? Because in order to take from the EU, you have to give a lot back, and that's something the Irish people aren't easy with.
As with any financial loan deal there are snags to the loanee, and the proposed EU bailout is no exception. As part of any EU bailout deal, the EU high commission will request in depth inclusion into the running of the Irish economy, and the usage of the bailout funds. This would be seen as quite a natural clause, the bailout would come directly from EU funds, and therefore from EU member states including the UK. If such a bailout were to go ahead, then the participating countries would want to ensure that the money was being spent in the right places, and that the neccessary steps were being made for full repayment and eliminating the possibility of a repeat bailout being needed. This would very much infringe on the Irish government and people's sovereignty over there nation state. This form of 'fear of losing control' over Irish affairs is really the driving force behind the anti-bailout feeling throughout Ireland.
The Irish Enterprise Minister Batt O'Keeffe recently told journalists "It has been a very hard-won sovereignty for this country and the government is not going to give over that sovereignty to anyone." Those on the street proud of their Irish heritage and in full memory of the campaign for Irish independence also support an Ireland that will not turn humiliated to the EU cap in hand, but instead can resolve its financial crisis by its own ways and means.
Thus, Ireland proposes a different manner than borrowing to get its economy back on track; much like the Coalition government here in the UK, the Irish government will shortly be announcing an austerity drive to combat the colossal debt problems plaguing the economy. The figures that are being announced round the ball park are quite staggering, with plans culminating to bring the structural deficit down to around 9% GDP by 2011. The fear is that although this may encourage inward investment once more into the Irish economy, the real economy (small businesses and local employment infrastructures) will suffer greatly from the loss of disposable income and government funding for grassroots business, sending demand plummeting, unemployment rising, benefit costs soaring, and thus the Irish economy back into recession.
By taking either proposed route to promised economic safety, the Irish government and subsequently citizens will be facing tough consequences for their bankers' actions; do the government save sovereignty and debt and try to save the Irish economy through an austerity drive which runs the real risk of tipping the economy back into recession, or do they accept the bailout from the EU to kick start the economy at the cost of dignity and influence? As a proud and dignified people, the Irish would seem to be moving towards the former like many EU and worldwide capitalist economies. The real question is, can their real, grassroots economy take the strain as well as its richer MEDC counterparts? Economies such as the USA and the UK have previously recovered from financial unstabilities through measures of austerity after artificial (government fiscle stimulus created) growth has restarted econimic growth. However, economics is highly contextual and relies on 'confidence' of the public and inevstors alike; if any country emabarks on a voyage of high levels of cuts and taxing, then they run the risk of stunting growth and stagnating the economy; to none so more is this relevant than to economies, like Ireland's, that havent started growing at a consistant pace once more. If this turns out to be the case for Ireland, it will be a bigger bailout, bigger humiliation, and bigger loss of sovereignty over to Brussels.
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