THE CELTIC TIGER HITS THE SKIDS

What Happened to the Celtic Tiger? Has Ireland hits the skids?

I visited Ireland several times in the nineties, before the Irish economic boom and loved it. The food was actually good, and of course Guinness on tap was available everywhere...and they say there "its good for you". After the happy event of an economic resurgence, prices climbed too and, reluctantly, I found it difficult to visit again. So I never did get to see the Celtic Tiger in action, but I followed that nation's progress with keen interest. While other events held sway closer to home, the thoughts of lovely Ireland did not fade away but remained a pleasant memory to revisit now and again always ending with hopes that the dollar might rise again relative to the euro and make a revisit possible. So today, I was especially startled to learn by way of a radio news report on NPR of a massive raucous protest of senior citizens (!) outside of the Irish government's Leinster House in Dublin! Angry seniors had gathered to protest. During th broadcast the Irish minister of health came out of the building and attempted to reach the podium from where he was to address the angry crowd. It was not to be. The menacing elderly pensioners, many over 70 years old, raced up to the podium to tear the microphone out of the hand of the government official. With the microphone in hand of an elderly man and the health minster in retreat, the raucous crowd finally settled down--- and began singing "a capella" but not an Irish lullaby, but an 20th century American civil rights song--"We Shall Overcome"--in a distinctive Irish brogue. What was going on there in Ireland?

It had to do with the faltering economy. On October 14, 2008 the Irish government announced a harsh belt-tightening plan for 2009 which included sharp tax rises and spending cuts of two billion euros ($2.7 billion). But the cut in outlay included a proposal to pull the national (free) health-benefit cards from a large segment of over-70 Irish pensioners! That got the seniors real mad.

Ireland is in a recession--its first in 25 years, and it is the first European nation to admit to it. To read how it happend access the following site. (See http://www.washingtonpost.com/wp-dyn/content/article/2008/10/14/AR2008101400577.html)

It's a familiar story, that we here in the USA should understand. A recent headline in the Irish Times blared out in its front page: "Property asking-prices are down 10%!" Home values have plummetted and building starts are stalled. http://www.moneyweek.com/news-and-charts/economics/is-ireland-heading-for-recession.aspx

It was a shock for all those who, as we did here, simply assume that real-estate prices would always rise. Remember hearing this? "Hey, the salesman said, "there's only so much land (or houses) and because of the laws of supply and demand the price will always go up." But according to estimates reported in Moneyweeek Irish property values were inflated (by unflagging demand) by as much as 25%. So perhaps only those few buying in the last few years, when prices were high would be affected? Well not so. According to Morgan Kelly, Professor of Economics at University College, Dublin, Ireland had become a "Bob the Builder" economy over the last decade. How did it happen? Well in 1998 the economy was strong, business was brisk and interest rates were stabilized at about 6% the economic wonder or Europe was dubbed the "Celtic Tiger". It was then that Ireland took advantage of its Eurozone position to opt for an interest rate offered by the European Central Bank (then with a sharply reduced interest rate-more suited to the struggling economies of France and Germany at the time). So after 1998 Ireland had a booming economy and low interest rates. Easy money and lots of entrepreneurial enthusiasm. This led to a housing boom which according to Moneyweek caused house prices to shoot up by more than 200% in the past five years. The construction boom employed a whopping 13% of the Irish labor force, that is more than one out of every eight working adults in Ireland worked in the building trades. When the building boom ended, the whole Irish economy was carried along with it.

So that is how, on October 14, 2008 angry Irish seniors were protesting. The end came when the decade-old housing boom met the global financial mess and set Ireland to be the first eurozone nation to enter recession.

Irish government data revealed a deficit of 12 billion euros for this year and expected it to rise to 15 billion in 2009. That would represent a government deficit of 7% of GDP and would be about twice the amount set by the European Union Stability and Growth Pact. Interestingly our own USA budget deficit for 2007 hit about $500 billion (without the recent bailout money) while our GDP is about $13 trillion, for a budget deficit of about 4% of GDP. So our present status would not permit us to be part of the eurozone either.

The fall of the Celtic Tiger, a sad commentary, but one to ponder about---and to remember. History does not repeat itself....but circumstances do!