Problems of Irish Economy

The Irish economy is in crisis because:

    • Irish Banks lost substantial sums in the credit bubble and bust, this meant the Irish government had to bail them out.
    • After several years of high growth, the Irish economy went into recession. Recent austerity measures (spending cuts) have caused a double dip recession and the current turmoil creates a bleak prospect for growth in 2011.
    • The recession and bank bailouts have led to a substantial rise in government borrowing. Markets have become worried that Irish debt is now looking unsustainable (especially combined with low prospects of growth) and so investors are requiring very high interest rates (9%) to compensate for risk of holding Irish government bonds.

debt

  • This fear over Irish bonds is spreading to the rest of the Eurozone and EU. Markets fear that the European wide debt crisis makes any European government more likely to default. Countries like Portugal and Spain have similar problems to Ireland.
  • Ireland is currently resisting a rescue package which may cause them to be frozen out of bond markets and also have to implement unpopular decisions like raise corporation tax rates.
  • The great difficult Ireland have is that on the one hand they need to tackle the budget deficit. But, by doing this they reduce prospects of economic recovery. If the economy doesn’t recover it is difficult to reduce the debt to GDP ratio.
  • Being in the Euro gives them little options as they can’t adopt an independent monetary policy and exchange rate policy.

Irish National Debt

irish debt

More on: Irish National debt

Related

By on April 17th, 2011

2 thoughts on “Problems of Irish Economy

  1. Who was willingly lending to the banks (encouraging them to search for and take-on high-risk business) and then stopped, causing this liquidity famine.

    Who is now only willing to lend money to governments, on the basis the government has the power of taxation and budget-cuts to repay the debt, but only at rates of interest the risk exceeding the nations ability to repay the capital sum.

    Can we guess it is all one of the same – like a drug dealer. Get them hooked, plentiful gear at low prices. Withdraw supply and jack the price up so much they have to go robbing – robbing you and me!

    1. Why did the Germans continue to lend while knowing the Greek economy and level of debt? (risk)
      I read that the Irish are only liable to the 58% of the bailout, which was Sovereign Debt, while the rest is just private dealings of the bankers. Why are the Irish made accountable for some other private company’s debt??

Leave a Reply

Your email address will not be published. Required fields are marked *