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Friday, September 07, 2012

Ireland: How long will economic turmoil last?

Eamon Gilmore, Ireland's Tánaiste (deputy prime minister) this week told an international audience via CNBC, that Ireland has emerged successfully from the EU-IMF bailout because it faced up to the crisis including making quick decisions on bank recapitalisation.

There has been some progress but apart from demands by the so-called bailout Troika, there have been no significant reforms and there is unlikely to be as Gilmore, the junior partner in the governing coalition and leader of the Labour Party, will not challenge public sector trade unions that have made common cause with counterparts in the professional trade unions (medical consultants, lawyers etc.)  in resisting change.

Irish Economy 2012: Howlin lauds sham cost savings in Croke Park public service agreement

Irish Times: Sept 07, 2012; Government should act and ditch Croke Park deal

The following is a response to a question on the Irish Economy blog on when the euro crisis will end?

In the grim summer of 1932, John Maynard Keynes, the most renowned economist of the twentieth century, was asked by a pressman when on a visit to Washington DC, whether there had ever been anything before like the Great Depression and he replied: “Yes, it was called the Dark Ages, and it lasted four hundred years.”

Next February, it will be 6 years since HSBC announced multibillion dollar losses on US subprime mortgages.

There is at least a decade of angst and turmoil ahead - - despite a likely improvement from the current situation in coming years.

Global growth may improve but from recent evidence, the Chinese will be cautious about the switch of the balance from investment to consumer spending. Stagnant US middle class incomes will continue and there will be no house equity to boost consumer spending.

The big successful companies employ a fraction of their counterparts in the past.

General Motors had over 618,000 employed in the US in 1979 - - in well-paid jobs; today, General Electric employs 133,000 and Apple 47,000.

The French newspaper ‘Ouest-France’ this week chided the government for presenting an unrealistic outlook of times ahead.

John Shoven, director of the Stanford Institute for Economic Policy Research (SIEPR), recently said: “People cannot expect to finance 20-25-year retirements with 35-year careers. Not in Greece [or] the United States.” 

The credit boom masked the reality of a growth crisis in Europe.

The turmoil will be in response to inevitable change because countries will have to adjust to paying their way without the aid of fast rising debt.

The insiders will fight to retain their priviliges but at some point in a country like Ireland, the collective power of the sans-culottes will get the attention of political leaders.

It happened in 1979 after the Government cravenly gave in to farmer demands to rescind a planned tax levy. PAYE income tax reform followed one of the biggest street protests in the history of the State.

There is a reason why there is seldom serious attention given to the issue of job creation.

Politicians tend to keep their fingers crossed with the next election in mind. Nevertheless, the speed in which François Hollande dropped his growth agenda is surprising.

However, a country that is close to the end of the road soon finds that the cliff beckons.

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