Share & Connect
Ireland’s austerity measures and spending cuts is a model that all European countries should adopt – or is it?
About three years ago, Ireland was granted 85 billion Euros by the Eurogroup and the IMF. As a part of the deal, the government of Ireland was obliged to take over all liabilities of the country’s banks to prevent an economic collapse.
Later, on a panel of the premiers, the current Prime Minister of Finland Jyrki Tapani Katainen said: “The Irish model is the one we all need. I don’t see that we have any choice… there is no short cut to heaven.” For some time now, Ireland’s implementation of the austerity package has been considered a role model for the rest of the Eurozone.
By measures which include increasing the state pension age and cutting public sector jobs and pay, Ireland turned 10 years of budget deficits into a surplus. David Begg, the general secretary of the Irish Confederation of Trade Unions, says: “We were the poster child for globalisation. Now we are the poster child for austerity.”
Recently, the Financial Times called Ireland’s minister of finance one of the best in Europe. Irish banks can borrow again on the open market, and the interest rates on sovereign bonds are rapidly falling. Indeed, that can be an indicator of the faith international capital has in the country’s future.
Added to this, Ireland is still a heaven for international companies searching for low taxes. On one hand the austerity measures seem to be working. The country’s budget deficit fell, unemployment rate is also slightly down. What is even more important: Ireland has avoided downgrades by Fitch and S&P, unlike many others.
But despite S&P reaffirming Ireland’s ‘BBB’ rating, it did not change its negative outlook. The agency explained that negative outlook is justified by the high risks to the stability of the financial sector and “uncertain growth prospects.” At the same time, according to Fitch, negative outlook also persist in countries like Belgium, France, Italy, Portugal, Spain and not least the United Kingdom.
So let us not forget that Europe is in deep need of a success story. The truth is, it is not all sunshine and rainbows. The economy is still weak, the growth the country is experiencing now is mostly due to the substantial fall in the labor cost.
Due to the small domestic market, almost all manufacturers are exporting to the Eurozone, the United Kingdom and the United States. Those destinations have the big problems of their own and probably even more to come.
Without further substantial economic growth, it will be impossible to reduce the government deficit and debt in the future. And without further reforms, the crisis could start all over again.
Image Courtesy : Jpmpinmontreal