By Angelos Anastasiou
The picture in Dublin is exactly what you’d expect: commercial streets filled with shops that people walk past with their heads down, not even bothering to glance at the store windows, homeless people sitting on pavements suffering the rain and cold and begging for spare change, and The Irish Times running a front-page story on housing cuts designed to help the elderly that will most likely end up hurting them.
But Ireland may well be on the road to economic recovery, following a property crash that caused a severe banking crisis which threatened to destroy its entire economy with disastrous effects on the eurozone. Once considered one of the greatest economic success stories in Europe, the ‘Celtic Tiger’s’ astonishing growth over the previous two decades was shattered in 2008 when the country faced imminent banking catastrophe.
In an effort to shore up confidence in its banking sector but without consultation with any of its European partners, the government decided to announce that it unconditionally guaranteed the liabilities of major Irish banks. Panic ensued among international investors, and the rest of Europe was shocked as, predictably, no other country was inclined to make such an assertion, particularly when no one knew whether any European country – including Ireland – could even afford to guarantee the totality of its banks’ obligations. It later turned out that Ireland’s guarantees could cost its government – i.e. the Irish taxpayer – up to four years of the country’s economic output.
Meanwhile, the real-estate and banking crashes dramatically reduced tax revenues, leaving the Irish economy flailing. The government decided to forego raising money through issuing new bonds in hopes that skyrocketing borrowing costs would fall. The European Central Bank repeatedly advised that bold measures – in the form of spending cuts and tax increases – were necessary in order to restore confidence among bond buyers and consequently bring rates down, but the government failed to respond quickly enough. In 2010, Ireland’s unemployment rate rose by five full percentage points.
What happened next sounds all too familiar: with no other options available, the troika was called to the rescue. In November 2010, an €85 billion bailout package was agreed with the European Commission, the International Monetary Fund and the European Central Bank, and it came with strings attached. The sharp spending slashes, tax hikes and public-sector restructuring, imposed and monitored by the troika as part of the agreement, signaled the loss of Ireland’s economic sovereignty.
The troika-ordered “bold measures” consisted, among others, of €15 billion in spending cuts, levying a property tax, reducing the minimum wage, and firing 20,000 public servants, and caused political turbulence that saw the ruling party Fianna Fail go down in flames after suffering the worst results of its history in the February 2011 elections.
But Ireland stoically followed through on its end of the deal with the troika despite soaring unemployment, and nearing the stiff adjustment programme’s completion date of December 2013 it was able to borrow €5 billion in a ten-year bond issue. A further €3.75 billion ten-year bond issue, auctioned on January 7, saw bids of €14 billion from international investors and was sold at a staggeringly low borrowing cost of 3.54 percent – down from a peak of over 15 percent in 2011.
Ireland’s unemployment rate, having peaked at 15.1 per cent in February 2012, slowly but steadily fell to 12.4 per cent by December 2013. Three years and 12 troika-review visits after the bailout agreement, a “change in outlook” and an “air of positivity and optimism” seem warranted for the Emerald Isle.
But if good things are happening in Ireland, Main Street hasn’t noticed. There is a disconnect between economists and officials looking at the big picture and the struggling public experiencing the consequences of their action – or inaction. Politicians and technocrats are understandably quick to jump on any piece of encouraging news and bandy about phrases like ‘path to growth’, if only to foster confidence, but the reality is that Ireland’s economic recovery is little more than a toss-up right now.
According to Taoiseach Enda Kenny, the two greatest challenges currently facing the ruling coalition are “driving unemployment further down and helping Irish emigrants return home”. If the opinion of ordinary citizens is anything to go by, neither is expected to happen any time soon.
Edward Kelly, a thirty-something taxi driver in Dublin, seems resigned: “on paper, they’re saying we’re doing good; but in real life it’s terrible. People can’t get jobs. It’s very bad.” Kelly has heard the numbers but isn’t convinced. “The Christmas season came in handy” for the government, he says because it helped paint a nicer picture than what was really there.
Caue Xavier, a 25-year-old Brazilian, was a licensed lawyer in his home country. Fully aware of the country’s dire economic predicament, and even though it meant that his Brazilian licence would no longer stand for anything, he migrated to Ireland in May 2013 to find work. “It’s cheaper here than any of the other options Brazilians have,” he says. “It’s easier to get a visa, and once you’re here, you’re in Europe.”
Finding any job – let alone a good one – proved almost impossible until he was employed by a charity organisation in November and tasked with convincing passers-by in the street to agree to monthly donations.
“The money isn’t great but it’s a nice job – charity for unfortunate children. Of course I’d consider any other job if it meant more money,” he says.
He wants to stay in Ireland, but not because of the resurging economy. “I’ve heard that the economy is doing better. But I haven’t noticed anything myself. It’s very bad right now, and it’s probably going to be very bad for some time still. I hope it gets better, but I don’t think it will right away.”
Perhaps unjustly stereotypical, alcohol is a mainstay of Irish culture, and a significant contributor to the economy with roughly €2 billion in VAT and a further €1 billion in exports. But consumption is down 14 per cent since 2007, and some 1,500 pubs were forced to close down as of mid-2013. Mike Brennan, 33, still works at a pub but thinks the worst is still to come because he doesn’t trust Irish politicians to maintain the discipline that has helped turn the tide through painful – if necessary – reforms.
“Everyone was celebrating but them leaving is probably the worst thing that could have happened” he says, implying that without the troika looking over the government’s shoulder in the role of enforcer, the country risks simply going back to its old, bad habits.
Technically, and even though Ireland has “successfully completed its adjustment programme”, the IMF – perhaps tellingly – maintains its presence in Dublin through a representative office. Mike’s point could prove prophetic.