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

The article Ireland: Is There a Shortcut to Heaven? appeared first on The Toonari Post - News, Powered by the People!.

New York, U.S.A. — Leaders of European Union member states are meeting in Brussels to discuss measures that might alleviate the financial crisis, and reassure stakeholders that the region and its weakest economies have a sound plan for restoring economic growth.

“Following today’s release of The Conference Board Leading Economic Index for the Euro Area, which fell for a third consecutive month (albeit at a slower pace), all eyes have turned to Brussels,” said Jean Claude Manini, The Conference Board Senior Economist for Europe. “The sharp deterioration in confidence suggests that output growth has fallen back into negative territory in recent months. If confidence in the economy and Europe’s financial situation cannot be restored quickly, economic activity may experience a deeper and longer contraction than currently projected.”

According to Bart van Ark, The Conference Board Chief Economist: “The latest EU summit represents a new and important opportunity to adopt a credible timetable of robust measures to get this crisis under control. The idea of a banking union is one of the most promising steps in the short term. While this would eventually involve accepting joint obligation for the debts of other member states in some form, if a bold and comprehensive process is identified, a gradual implementation might be acceptable for those involved in the decision making.”

Following months of rising financial market turmoil in the Euro Area, The Conference Board recently revised its projection for Euro Area GDP in 2012 down from -0.1 percent to -0.3 percent and also has made downward revisions to its forecasts for Spain, Italy, France, and the U.K. This morning’s release of The Conference Board Leading Economic Index for the Euro Area and The Conference Board Coincident Economic Index for the Euro Area provides additional evidence that the condition of the region’s economy is continuing to deteriorate.

To provide additional context regarding the challenges summit participants will be addressing, The Conference Board has released the June edition of its Economics Watch European View publication. This report contains details regarding our near-term forecast, a discussion of how member states may seek to reduce financial risk in the banking sector, and a detailed look at what the implementation of austerity measures could mean for the economies of Euro Area members.

The article EU Summit to Discuss Economic Stability in the Region appeared first on The Toonari Post - News, Powered by the People!.

Italian Prime Minister Silvio Berlusconi has resigned amid catastrophic levels of debt that potentially endangered the fate of the entire Euro Zone. Many countries are engulfed by exorbitant public debt that has put mere functioning of government in serious questions from Ireland to Greece. There is an exclusively high rate of uncertainty hovering over the minds of people in and around the Euro-Zone.

The biggest question remains whether Berlusconi’s exit brings good fortune to Italy’s economy and unquestionably to world economic growth prospects in future. Now the fate of the Italian economy solely resides on how effectively President Giorgio Napolitano forms new government under the leadership of Mario Monti a former European Commissioner and most widely discussed candidate for the top post!

The parliament has just passed austerity measures to break the country out of the debt death spiral. The package foresees to save 59.8 Billion Euros from a combination of spending cuts and tax increases.

1 percentage point increase in VAT to 21 percent from 20 percent,stalling of public-sector wages till 2014. Special tax on Energy Sector.They also include increasing age of retirement, reforming employment law, privatizing state corporations and the like.

Austerity measures imply planned reduction in state expenditures on services and benefits in an attempt to reduce deficit spending. Austerity measures does not at all represent moves to realign the fiscal system or to provide with long-term prospective reforms that are needed the most to debt laden countries.

Rather short-term focused which might ultimately prove to provide relief on a marginal scale seriously under representing the whole cluster of fiscal turbulence.

Austerity measures basically tend to lower the intensity of ballooning deficit rather than finding out a constructive and effective way of dealing with it in the future.

According to the Daily telegraph “indeed the euro-zone is reaching a point of no return and it’s becoming a disaster for the global economy in an editorial recently. Pundits also claimed that in order to rescue Italy, almost all the funds in the European Financial Stability Facility (EFSF) would be needed. (1 trillion Euros)

According to Organization for Economic Cooperation and Development (OECD) Gross Italian Debt is up more than 110 percent from the last ten years, in the year 2001 it stood at 120 percent of Gross Domestic Product and even in the year 2005 it was 119.9 percent and again it followed a similar trend in the year 2010 when it reached 118 percent of Gross Domestic Product.

Emma Marcegaglia, head of the Italian Employees association, Confindustria said structural reforms demanded by European Central Bank and European Commission are imminent now, and further said reforms are the only thing that can take us out of current situation.

Image courtesy of the Huffington Post

The real threat to Italian Economy according to a few economists is slow growth rate over the last fifteen years. The above figure illustrates that in the course of fifteen years Italian economic growth rate has been less than the rest of Europe.

Putting any economy back to normal conditions requires stable growth rate and stable growth prospects, these two vital ingredients are missing in Italy’s case, so moving forward into an era of economic unease might continue for quite a few years. The hope is that through these measures, the Italian economy grows at faster rate and the burden of debt is lessened in the near future.

360b / Shutterstock.com

The article Berlusconi’s Exit May Not Anchor Sinking Italian Economy. appeared first on The Toonari Post - News, Powered by the People!.