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Economy of the Republic of Ireland

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Economy of Ireland
Currency 1 Euro = 100 cent(s)
Fiscal year Calendar year
Trade organisations EU, WTO and OECD
Statistics
GDP €161.6 bn (2005)
GDP growth 4.7% (2005 est.)
GDP per capita $41,000 (2005 est.)
GDP by sector agriculture (5%), manufacturing (46%), services (49%) (2002)
Inflation (CPI) 3.9% (2006)
Population
below poverty line		 10% (1997 est.)
Labour force 2.154 million (2006[1] )
Labour force
by occupation		 services (64%), manufacturing (29%), agriculture (8%) (2005)
Unemployment 6.6% (October 2008) [13]
Main industries steel, lead, zinc, silver, aluminium, barite, and gypsum mining processing; food, brewing, textiles, clothing; chemicals, pharmacology; machinery, rail transportation equipment, passenger and commercial vehicles, ship construction and refurbishment; glass and crystal; computer software, tourism
External
Exports $102 billion f.o.b. (2005 est.)
Export goods machinery and equipment, computers, chemicals, pharmaceuticals; live animals, animal products
Main export partners United States 18.7%, United Kingdom 17.3%, Belgium 15.1%, Germany 7.3%, Netherlands 4.8% (2005)
Imports $65.47 billion f.o.b. (2005 est.)
Import goods data processing equipment, other machinery and equipment, chemicals, petroleum and petroleum products, textiles, clothing
Main import partners UK 36.8%, United States 13.8%, Germany 9.1%, Netherlands 4.5% (2005)
Public finances
Public Debt €37.2 bn (27% of GDP) (June 2006)
Revenues €44.3 bn (2006)
Expenses €45.4 billion (2006)
Economic aid donor: ODA, €735 mn (2005)
Main data source: CIA World Fact Book
All values, unless otherwise stated, are in US dollars
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Contents

[edit] History

Main articles: Economic history of Ireland and Social Partnership

The state known today as Ireland seceded from the United Kingdom in 1922. The state was troubled by poverty and emigration until the early 1990s. These problems virtually disappeared over the course of that decade, which saw the beginning of unprecedented economic growth, in a phenomenon known as the "Celtic Tiger". Over the past two decades, the Irish government has implemented a series of national economic programmes designed to curb inflation, ease tax burdens, reduce government spending as a percentage of GDP, increase labour force skills, and promote foreign investment. Ireland joined in launching the euro currency system in January 1999 along with ten other European Union countries. The economy felt the impact of the global economic slowdown in 2001, particularly in the high-tech export sector – the growth rate in that area was cut by nearly half. GDP growth continued to be exceptionally high in international terms, with a rate of about 6% in 2001 and 2002 – and it is expected to continue at more than 4 per cent (2006 onwards). Since 2001, GNI (which measures income to Irish residents rather than output) growth has been much slower.

[edit] Infrastructure

Ireland's transport infrastructure came under strain due to the economic expansion of the past decade. Since 1993, road transport has been coordinated by the National Roads Authority in the case of the National Primary Routes, which are the most heavily used roads,[2] The National Secondary Routes act as regional roads and linkages between the primary routes. The Dublin area is served by a light rail network (the Luas), the Dublin Port Tunnel the M50, Dublin Airport, Dublin Suburban Rail and the DART.

The DART is a key piece of infrastructure in Dublin for commuters

Ireland's rail network is run by the semi-state body Iarnród Éireann, a subsidiary of CIÉ and is made up of 9 national lines and several regional commuter lines such as the DART. CIÉ retain some freight customers, though few new freight services have started in recent years. Only some major ports remain technically freight-connected, the connection at Sligo for example was removed in 2003, while the link to Foynes has remained unused since 1999. The efficiency of the train network is poor, with regular delays and overcrowding on major routes. Some regional routes have few services, and as a result, struggle to achieve passengers. Much new rolling stock has been acquired since 1994, and as of 2004, this is finally beginning to expand capacity rather than just replacing old stock. Most major routes have been relaid with continuous welded rail, and signalling has in most cases been upgraded from the more than century-old mechanical semaphores.

The country has a total of 15 airports and airfields, of which 3 - Dublin Airport, Shannon Airport and Cork Airport are of a substantial size. The country is served by several airlines, most notably Aer Lingus, Ryanair, Aer Arann, and CityJet. Air transport is relatively cheap. The main ports are Rosslare Europort, Limerick, Dublin, Cork and Waterford. There are daily ferry services to Britain.

In Telecommunications, the deregulated market has ensured that other licenced operators now account for a 32% share of the market. [3]

Broadband is now available in Ireland via DSL, Cable, Wireless and Satellite.[4] As of November 2007, DSL is available to c. 88% of homes and businesses. Overall takeup of broadband (cable, dsl, wireless etc.) is 15.4% as of July '07 [5] and there are 698,000 broadband subscriptions as of September ’07 [6] The average monthly subscription cost is $40.41, 20% cheaper than the average of $49 for the 35 OECD countries surveyed. [7]

In 2008 the Minister for Communications Eammon Ryan has announced an unprecedented investment in broadband infrastructure, which will see every household in Ireland capable of receiving broadband speeds of 100mb by 2012. .5% of lines connected to broadband-enabled exchanges cannot avail of DSL, due to distance and other issues. [8]

There are five mobile telecommunications providers - 3 Ireland, O2 Ireland, Meteor, Tesco Mobile and Vodafone Ireland. The electricity transmission system is run by the Electricity Supply Board and is available nationwide. The gas network is currently being expanded.

See also: Transportation in Ireland, Rail transport in Ireland, Roads in Ireland, Communications in Ireland,Broadband Internet access in Ireland, Water supply and sanitation in Ireland

[edit] Energy

The vast majority of Irish energy needs are met by fossil fuels. About 98% of Ireland's final energy demand is produced by burning coal, petroleum, peat, or natural gas. This over reliance on fossil fuels - particularly oil - has left Ireland vulnerable to international price fluctuations as it imports all of its oil needs. As part of its National Development Plan the Government adopted the Sustainable Energy Act (2002) and created Sustainable Energy Ireland as the nation's energy regulator. As part of their objectives to promote environmentally and economically sustainable energy production, electrical generation from peat consumption, as a percent of total electrical generation, was reduced from 18.8% to 6.1%, between 1990 and 2004.[9] Likewise, coal consumption was reduced from 41.7% to 27.6%. Making up for this, the share of natural gas in electrical generation increased from 26.7% to 44.8%. Renewable energy, from biomass, wind and hydro, also increased from 1.9% to 2.6% in the same time period. A forecast by Sustainable Energy Ireland predicts that oil will no longer be used for electrical generation but natural gas will be dominant at 71.3% of the total share, coal at 9.2%, and renewable energy at 8.2% of the market.[9] Wind power is quickly developing in the country by Airtricity and Hibernia Wind Energy (a subsidiary of the Electricity Supply Board) and many other companies. As of December 2005, there were fifty wind farms operational in Ireland with a combined capacity of 500 MW - generating enough energy for 300,000 homes, depending on wind conditions. In addition, a further 600 MW of wind farms (40 more) have signed connection agreements to link to the power system at high voltage or low voltage, and up to 200 MW of wind farms have received connection offers. Should these reach capacity, Ireland may exceed its EU target of 13.2 per cent of electricity generated from renewable sources by 2010. In addition to wind farms, electricity is also generated at large scale hydro schemes on the Shannon, Erne, Liffey and Lee rivers, and at mini-hydro stations, as well as landfill gas generating plants in Cork and Dublin cities.

Peat once provided much of Ireland's energy needs
Statistics[10]
  • Electricity production: 23.41 billion kWh (As of 2003)
  • Energy production by source: oil: 55.8%, natural gas: 24.3%, coal: 12.9%; peat: 3.8%; renewables: 2.2%; nuclear: 0% (As of 2004)[9]
  • Electricity consumption: 22.97 billion kWh (As of 2003)
  • Electricity exports: 0 (As of 2003)
  • Electricity imports: 1.2 billion kWh (As of 2003)
  • Oil consumption: 175,600 bbl/day (27,918 m³) per day (As of 2003 est.)
  • Natural gas production: 673 million m³ (As of 2003 est.)
  • Natural gas consumption: 4.298 billion m³ (As of 2003 est.)
  • Natural gas proved reserves: 19.82 billion m³ (As of 1 January 2002)

[edit] Monetary system

As the country is a member of the Economic and Monetary Union of the European Union, the euro is the currency. The most common bills in circulation are the €5, €10, €20 and €50; the €100, €200 and €500 bills are rarely seen. The Central Bank and Financial Services Authority of Ireland is the country's central bank and financial services regulator, and an agent for the European Central Bank which sets the interest rates. The low interest rates of the ECB - to stimulate the Eurozone - has helped to sustain the very high growth rate of Ireland, leading to high levels of inflation in the country. For example, increased inflation on housing, from IRE£9,000 (€11,430) in 1973 to €220,000 in 2004 has led to young couples accepting large mortgages and the wealthy buying investment properties. It is arguable that if Ireland had its own currency, interest rates would be higher and inflation would be reduced- however so would economic growth. Fears of overheating (that is excessive growth) of the economy due to the Euro seem to be unfounded, at least up to the present.

While there are over 60 credit institutions incorporated in Ireland,[11] the banking system is dominated by the Big Four - AIB Bank, Bank of Ireland, Ulster Bank and National Irish Bank.[12] There is a large Credit Union movement within the country which offers an alternative to the banks. The Irish Stock Exchange is in Dublin, however, due to its small size, many firms also maintain listings on either the London Stock Exchange or the NASDAQ. The insurance industry in Ireland is a leader in both retail markets and corporate customers in the EU, in large part due to the International Financial Services Centre.[13]

[edit] Economic sectors

The chart displays the make up of Irish GDP

The Irish economy's secondary and tertiary sectors are of a similar size in fiscal terms however in terms of labour, the tertiary sector is far larger. Similarly in fiscal terms the primary sector appears small, however it still employs about 8% of the workforce.

[edit] Primary sector

The primary sector constitutes 5% of Irish GDP, and 8% of Irish employment. Ireland's main economic resource is its large fertile pastures, particularly the midland and southern regions. In 2004, Ireland exported approximately €7.15 billion worth of agri-food and drink (about 8.4% of Ireland's exports), mainly as cattle, beef, and dairy products, and mainly to the United Kingdom.[14] As the European Union's Common Agricultural Policy takes force Ireland's agriculture industry is expected to decline in importance.[15]

Trawlers sit in Killybegs harbour, in County Donegal, one of Ireland's biggest fishing ports. Over fishing has depleted Ireland's cod stocks in particular.

Due to unsustainable nineteenth century forestry practices the island was mostly deforested. In 2005, after years of national afforestation programs, about 9% of Ireland has become forested.[16] It is still the least forested country in the EU and heavily relies on imported wood.[17] Its coastline - once abundant in fish, particularly cod - has suffered overfishing and since 1995 the fisheries industry has focused more on aquaculture. Freshwater salmon and trout stocks in Ireland's waterways have also been depleted but are being better managed.[18] Ireland is a major exporter of zinc to the EU and mining also produces significant quantities of lead and alumina.[19] Beyond this, the country has significant deposits of gypsum, limestone, and smaller quantities of copper, silver, gold, barite, and dolomite.[20] Peat extraction has historically been important, especially from midland bogs, however more efficient fuels and environmental protection of bogs has reduced peat's importance to the economy.[21] Natural gas extraction occurs in the Kinsale Gas Field and the Corrib Gas Field in the southern and western counties,[22] where there is 19.82 bn cubic metres of proven reserves.[20]

[edit] Secondary sector

The secondary sector constitutes 46% of Irish GDP — but only 29% of the labour force. Dominated for many years by textile companies like Fruit of the Loom, the sector is now largely made up of high-tech/high value multi-nationals such as Dell, Intel, Pfizer and IBM. The secondary sector in Ireland manufactures products such as computers (25% of Europe's computers are made in Ireland, the European Headquarters of Apple Computer are in Cork City), computer parts (Intel processors are made in Ireland), drugs (much of Europe's supply of Viagra is made in Cork), confectionery (HB, Jacobs and Cadbury-Schweppes all have significant Irish operations - although Cadbury-Schweppes does not manufacture Schweppes products in Ireland or the UK), beer (the Guinness and Smithwicks, and Harp Lager breweries are located in Ireland), high quality glass and crystal (Waterford Crystal is made in County Waterford), software (Ireland is the world's largest exporter of software - Oracle and Microsoft both have large operations in Dublin) and machinery. The sector faces increasing competition from cheaper Eastern European countries such as Poland and many Asian countries such as the People's Republic of China, particularly in the lower skill areas such as confectionery manufacturing. The industrial production growth rate in As of 2003 was 6.7%. Over the last decade, construction has become a major component of the economy, currently constituting 9% of economic activity. A recent downturn in residential property market sentiment, combined with the cyclical nature of construction has highlighted the over-exposure of the Irish economy to construction, which now presents a threat to economic growth.[23][24]

Tourist sites such as Newgrange, County Meath are vital to the Irish economy

[edit] Tertiary sector

The tertiary sector constitutes 49% of Irish GDP and 64% of Irish employment. The tertiary sector is by far the largest driver of modern Irish economic growth — the Celtic Tiger. It is made up of several industries such as accountancy, legal services, call centres and customer service operations, finance and stock broking, catering, and tourism. Many US firms (such as IBM, Apple Inc., Google and eBay) located their European customer service operations in Ireland due to the availability of a young, highly educated, English speaking workforce. Recruitment agencies also play a major role in this sector, connecting qualified work candidates to business clients looking to hire in these areas. The Irish tourism industry attracts over five million visitors annually and employs over 100,000. The IFSC in Dublin created some 14,000 jobs in the 1990s, all in the high-value finance and legal sectors. The hospitality and retail sectors are quite large — there are hundreds of domestic and foreign retail firms in Ireland (such as Next and Argos), and most cafe and restaurant firms operate in Ireland such as McDonalds, Starbucks, Burger King and Subway.

See also: Retail in Ireland, Recruitment in Ireland

[edit] State role in the economy

[edit] State ownership

At present the Irish Government controls several large and key parts of the economy:

Although the government owns the incumbents in the electricity, mail, broadcasting, land transport and air transport industries, many are wholly or partially open to competition from the private sector. Traditionally large and key sectors of the economy were dominated by government ownership.[citation needed] Some of these industries are currently being reformed and opened to competition however some of them are regarded as being slow to adopt change and reform to work practice — work pay and conditions are often much better than that in the private sector with some having overstaffing or underproductivity which is seen as an impediment to reform.[citation needed]

The government in 2006 privatised Aer Lingus and is currently considering the privatisation of part of the Electricity Supply Board, but it is somewhat reluctant because of an earlier situation that resulted from the privatisation of Eircom.[citation needed] In that case, hundreds of thousands of small shareholders lost money, private investors took control and established a virtual monopoly, while under-investment led to a slow roll out of broadband infrastructure.[citation needed]

[edit] Taxation

Main article: Taxation in the Republic of Ireland

The present government (1997–) has favoured a low taxation policy to encourage foreign direct investment in Ireland. Consequently, the government opposes moves by the European Commission to restrict tax competition. Between 1998 and 2003 the corporate tax rate was reduced in stages from 32% to the current rate of 12.5%, versus between 15% and 60% in the rest of Europe. The income tax system is designed to redistribute wealth from the richer to the poorer segments of society. There are 2 tax bands, based on income levels. These range from a maximum top rate of 41%, to a maximum bottom rate of 20%. In reality, however, a generous tax credits system ensures that the lower rates of taxation are normally 4% to 12%. The top rate of tax never exceeds 35% in practice.

The government receives much of its revenues from taxes on goods — these include a 21.5% VAT rate on most consumer goods, high levels of excise duty on tobacco, petrol, and alcohol and several smaller taxes on items such as plastic bags, cheques, ATM cards, credit cards and debit cards. The taxes in the personal financial sector, as well as the television licence, are often seen as regressive.

[edit] The welfare state

The Irish government runs a Welfare state system. The government provides free tuition for education at all levels for all resident EU citizens, and free primary and secondary education for all residents. The government also runs the public health service with hospital care free to all and lower earners or people dependent on benefits receive all medical services for no charge, including dental, oral and aural services. Other citizens get all such health services at a reduced/subsidised rate, or can claim tax-relief on medical expenses not covered by the state. People who are unemployed receive unemployment benefits and retired people are entitled to a state pension - both benefits are quite high by international comparisons. However, recent changes in the cost of living in Ireland have greatly eroded their relative buying power. Pension payments were €223.30 per week in 2008.[citation needed]

[edit] Health care

Main article: Health care in Ireland

[edit] Education

Main article: Education in Ireland

The education system is comparatively very good with standards in mathematics, science and technology being among the highest in OECD member nations[citation needed]. The state has a virtual monopoly in higher education — there are few private colleges and these are highly specialised. The primary and secondary school enrolment levels are over 95% and at these levels choice is wide. Third level entry is competitive; all college and university tuition fees are free and courses adjusted to the needs of the economy. Irish adult literacy is 99% — in line with other OECD countries.

The only recognized universities are Dublin City University, National University of Ireland (with constituent universities at Cork, Dublin, Galway and Maynooth), University of Limerick and University of Dublin. The Institute of Technology system has recently overtaken the universities in terms of first year enrolment numbers and this trend appears to be accelerating.

[edit] Economic ties

[edit] United States

In 2003, trade between Ireland and the United States was worth around $33 billion, a $4 billion increase over 2002. U.S. exports to Ireland were valued at $7.7 billion, an increase of almost $1 billion over 2002. Irish exports to the U.S. were worth some $25.7 billion — a 500% increase since 1997. Ireland had a trade surplus of over $15 billion with the U.S. in 2003.[26] The range of U.S. products imported to Ireland includes electrical components, computers and peripherals, drugs and pharmaceuticals, electrical equipment, and livestock feed. Exports to the United States include alcoholic beverages, chemicals and related products, electronic data processing equipment, electrical machinery, textiles and clothing, and glassware.

U.S. foreign direct investment in Ireland has been particularly important to the growth and modernization of Irish industry since 1980, providing new technology, export capabilities, and employment opportunities. The major U.S. investments in Ireland to date have included multi-billion dollar investments by Intel, Dell, Microsoft, IBM, Wyeth, Google, EMC and Abbott Laboratories. Currently, there are more than 600 U.S. subsidiaries operating in Ireland, employing in excess of 100,000 people and spanning activities from manufacturing of high-tech electronics, computer products, medical supplies, and pharmaceuticals to retailing, banking and finance, and other services. Many U.S. businesses find Ireland an attractive location to manufacture for the EU market, since as a member of the EU it has tariff free access to the European Common Market. Government policies are generally formulated to facilitate trade and inward direct investment. The availability of an educated, well-trained, English-speaking work force and relatively moderate wage costs have been important factors. Ireland offers good long-term growth prospects for U.S. companies under an innovative financial incentive programme, including capital grants and favourable tax treatment, such as a low corporation income tax rate for manufacturing firms and certain financial services firms.Irish firms are now beginning to provide a lot of employment in the U.S., for example indigineous Irish companies, particularly in the high tech sector have provided in excess of 80,000 jobs to date for American citizens.[citation needed]

[edit] European Union

Although the USA is the single most important economic partner, it lags by far the EU as a whole which accounts for 63.3% of Ireland's exports (US 18.7%) and 57.4% of her imports (US 14.1%). (data for 2005)[27].

Ireland has grown much closer to Europe in recent years — particularly since it joined the European Union (EU) in 1973. It is also part of the EMU and thus has the euro as its currency. Many US companies have located their European headquarters in Ireland and this has led to increased Irish-European ties. Ireland regularly comes near the top in polls of the most enthusiastic Europeans[28] and spent some €60m during its presidency of the EU. The EU now accounts for the bulk of Irish trade, with the United Kingdom being the largest trading partner. Ireland's main exports to Europe are beef, computers (Dell, Intel, HP, EMC, Analog Devices and Apple Computer all have manufacturing facilities in Ireland) and software (Oracle and Microsoft have their European Headquarters in Ireland). Ireland's major imports from Europe include cars, machinery, trucks, steel, oil and consumer goods. A major economic bonus Ireland has received from EU membership has been agricultural subsidies from the CAP and large amounts of EU investment in Irish road infrastructure. Since the acceptance of the 10 new Eastern European nations in 2004, Ireland's ties with Europe further increased. Since the accession event in 2004, several hundred thousand workers from countries such as Latvia, Poland and Estonia, no longer requiring work permits, came to live and work in Ireland.

[edit] Wealth distribution

Like many Western democracies wealth is partially redistributed among the poorer segments of society through the progressive tax system. Large disparities in wealth exist between those employed and those dependent on welfare payments. The percentage of the population at risk of relative poverty was 21% in 2004 - one of the highest rates in the European Union.[29] Levels of wealth higher than the national average are concentrated among people living in the central eastern region and in Dublin. Despite this, there are many areas in Dublin marked by relative poverty, particularly in the inner city. The poorest members of society are those entirely dependent on welfare payments. Ireland's inequality of income distribution score on the Gini coefficient scale was 30.4 in 2000, slightly below the OECD average of 31.[30] Ireland's 2000 score was less than 9 of the OECD member states but higher than 13 members.

In contrast to most other countries in the European Union (with the exception of the UK, Greece and Hungary) Ireland has high rates of home ownership. In particular, house ownership (at approximately 80%) is the norm. In Continental Europe renting is the norm. Social housing schemes do exist and the government has invested €8.5 billion in the provision of over 34,000 social housing units between 2000 and 2005.

Sustained increases in the value of residential property during the 1990s and up to late 2006 was a key factor in the increase in personal wealth in Ireland, with Ireland ranking second only to Japan in personal wealth in 2006.[31] However, residential property values and equities have fallen substantially since the beginning of 2007 and major declines in personal wealth are expected.[32]

[edit] Minimum wage

The national minimum wage is €8.65 per hour for full time staff over the age of 18 — this is one of the highest in the world. From 2007, someone working 39 hours per week at this rate is exempt from income tax, as earned income below €17,600.00 per year is not taxed.

[edit] Welfare benefits

As of December 2007, Ireland's net unemployment benefits for long-term unemployed people across four family types (single people, lone parents, single-income couples with and without children) was the third highest of the OECD countries (jointly with Iceland) after Denmark and Switzerland.[33]

Jobseeker's Allowance or Jobseeker's Benefit for a single person in Ireland is €197.80 per week, as of January 2008.[34] This compares to £60.50 (~ €77.20) per week for a single person aged 25 or over in the UK.[35]

State provided old age pensions are also relatively generous in Ireland. The maximum weekly rate for the State Pension (Contributory) is €223.30 for a single pensioner aged between 66 and 80 (€423.30 for a pensioner couple in the same age range).[36] The maximum weekly rate for the State Pension (Non-Contributory) is €212.00 for a single pensioner aged between 66 and 80 (€352.10 for a pensioner couple in the same age range).[37]

[edit] Recent developments

 This section may contain unpublished synthesis of published material that conveys ideas not attributable to the original sources. See the talk page for details. (October 2008)

Falls in property values, combined with large reductions in activity and employment in the residential construction sector (which had accounted for a high proportion of economic activity in Ireland in recent years), the impact of the global credit crunch and higher inflation (largely driven by higher fuel and energy costs) have combined to cause major economic uncertainty in Ireland.[citation needed] Government deficits have increased and cutbacks are being made or planned in government spending.[citation needed] For the first time in 25 years, Ireland has entered a recession, with its GDP shrinking by 0.5 percent in the second quarter of 2008, and shrinking again by 0.3 percent during the third quarter.[38] Although many economists are not fully in agreement on this, most believe that Ireland's economy will not recover until 2010 at the earliest.[citation needed] Many economists believe that if the Irish Government manages the downturn properly, Ireland should see growth levels of 2-3% again.[citation needed]

[edit] Financial Crisis since 2008

[edit] International credit crunch

When the value of internationally-traded securities backed by US subprime mortgages caused a crisis of confidence in the banking sector, the result was an international credit crunch. This presented the first[citation needed] challenge to the Irish financial system- namely a dramatic fall-off in liquidity. As Irish banks depend to a significant extent on the international financial markets for liquidity, this has impacted the banks severely. The Irish government stepped in with a guarantee which effectively granted a sovereign triple A rating on the banks' debt, thus freeing up its access to finance.

[edit] Bank solvency

The second problem, unacknowledged by management of Irish banks, the financial regulator and the Irish government,[39] is solvency. The question concerning solvency has arisen due to domestic problems in the crashing Irish property market. Irish financial institutions have substantial exposure to property developers in their loan portfolio.[40] These property developers are currently suffering from substantial over-supply of property, much still unsold, while demand has evaporated. The employment growth of the past that attracted many immigrants from Eastern Europe and propped up demand for property has been replaced by rapidly rising unemployment.[41] Irish property developers speculated billions of Euros in overvalued land parcels such as urban brownfield and greenfield sites. They also speculated in agricultural land which, in 2007, had an average value of €23,600 per acre ($32,000 per acre or €60,000 per hectare)[42] which is several multiples above the value of equivalent land in other European countries.[citation needed] Lending to builders and developers has grown to such an extent that it equals 28% of all bank lending, or "the approximate value of all public deposits with retail banks. Effectively, the Irish banking system has taken all its shareholders' equity, with a substantial chunk of its depositors' cash on top, and handed it over to builders and property speculators.....By comparison, just before the Japanese bubble burst in late 1989, construction and property development had grown to a little over 25 per cent of bank lending."[43]

Irish banks correctly identify a systematic risk of triggering an even more severe financial crisis in Ireland if they were to call in the loans as they fall due. The loans are subject to terms and conditions, referred to as "covenants". These covenants are being waived[44] in fear of provoking the (inevitable) bankruptcy of many property developers[45] and banks are thought to be "lending some developers further cash to pay their interest bills, which means that they are not classified as 'bad debts' by the banks".[40] Furthermore, the banks' "impairment" (bad debt) provisions are still at very low levels.[46][47] This does not appear to be consistent with the real negative changes taking place in property market fundamentals.

In contrast, on the 7th of October 2008, Danske Bank wrote off a substantial sum largely due to property-related losses incurred by its Irish subsidiary - National Irish Bank.[48] The 3.18%[49] charge against the loan book of its Irish operations is the first significant write off to take place and is a modest indication of the extent of the more substantial future charges to be incurred by the over-exposed domestic banks. Asset write downs by the domestically-owned Irish banks are only now slowly beginning to take place[40]

Incidentally, while over-exposed to the property market, AIB (Allied Irish Banks) is thought be more diversified and to manage risk relatively better than its rivals such as Bank of Ireland and, in particular, PermanentTSB (Irish Life & Permanent), Anglo Irish Bank and Irish Nationwide Building Society. Investments in the Polish banking market represent a gem among AIB's foreign acquisitions. Rumours circulated that Spain's Grupo Santander had expressed an interest in acquiring Bank of Ireland but the acquisition was not undertaken when due diligence had been undertaken. This was subsequently denied by Bank of Ireland.[50]

[edit] Financial Regulation

The banks are essentially commercial entities whose main objective is to maximise profits within the regulatory framework administered by the Financial Regulator. The Regulator oversaw 100% mortgages being offered which effectively eliminated any buffer against possible negative equity by mortgage holders. Once it became clear that the Regulator no longer enforced mortgages rules concerning salary multiples, bank began to offer clients increasingly unsustainable mortgages. Mortgages, commonly over 7 times a couple's combined gross income, were granted when additional conditions were agreed to,[Neutrality disputed — See talk page] such as that a room would be let to generate marginally increased income. This was often supplemented by credit union loans, thereby increasing the effective salary multiple even higher.

The Financial Regulator had a laissez-faire attitude to regulation in that "as long as international markets were happy to buy debt issued by Irish banks, there could be no problem with their lending policies"[43]

[edit] Government guarantee of Irish banking system

On 30 September 2008, the Irish Government declared a guarantee that intends to safeguard the Irish banking system. The Irish State guarantee, backed by taxpayer funds, covers "all deposits (retail, commercial, institutional and interbank), covered bonds, senior debt and dated subordinated debt".[51] The initial reaction on the markets was positive, with the share prices of Irish banks rebounding strongly. Subsequently, however, the share prices have continued their downward trend and as of 13 October 2008 have reached new lows not seen since the 1990s. This guarantee came, of course, at a cost to the Irish taxpayer. Markets have placed a slightly higher risk premium on Irish sovereign debt. Higher interest payments on the national debt is effectively the result, and this is occurring at a time when the national debt is projected to increase significantly. Furthermore, any bank failure will present major costs to the Irish taxpayer.

In exchange for the bailout, the government did not take preferred equity stakes in the banks (which dilute shareholder value) nor did they demand that top banking executives' salaries and bonuses be capped, or that the banks' board members be replaced.[52] The Irish taxpayer has effectively assumed all the risks of the bailout while banking executives and shareholders have not incurred corresponding losses over and above losses in the stock markets. The predicted substantial asset write-downs faced by Irish banks may yet force the government to recapitalise Irish banks using taxpayer funds.

Despite the Government guarantees to the banks, their shareholder value continued to decline and on 2009-01-15, the Government[53]nationalised Anglo Irish Bank, which had a market capitalisation of less than 2% of its peak in 2007. Subsequent to this, further pressure came on the other two large Irish banks, who on 2009-01-19, had share values fall[54]by between 47 and 50% in one day.

[edit] Government-backed mortgages

As of 11 October 2008, leaked reports of possible actions by the government[55] to artificially prop up the property developers have been revealed. The alleged plan is to provide mortgages of up to EUR 300,000 (over $400,000) of taxpayers money to first time buyers on the condition it "will be restricted to the purchase of new homes only". Yet more capital is being artificially directed to support falling property prices.[Neutrality disputed — See talk page] It is now likely that the crisis will be prolonged as market prices for property will take much longer to return to long term sustainable levels rather than allowing the re-adjustment to take place. A swifter adjustment would have corrected the imbalances more quickly,[Neutrality disputed — See talk page] allowing economic growth to resume.[Neutrality disputed — See talk page]

[edit] 2009 Budget

On Tuesday, 14 October, 2008, the Government presented its 2009 Budget. Current developments point to a deficit of almost €15 billion[56] which amounts to over 10% of GDP despite European Union rules which oblige member states to keep budget deficits below 3% of GDP. The Budget saw tax increases including an increase in VAT of 0.5% (to 21.5%); an income levy of 1% on incomes up to €100,000 and 2% on the remaining sum of incomes over €100,000; a 50 cent increase in the tax on cigarettes; an eight cent increase on the tax on petrol, excluding diesel; a 50 cent increase on the tax on wines and taxes on second homes, flights departing Irish airports and an increase of 1% (to 2%) on betting tax.

In March 2009, Ireland was stripped of it`s AAA credit ranking and downgraded to AA+ by Standard & Poor's ratings agency, due to Ireland`s bleak financial outlook and heavy government debt burden.[57] In light of the worsening condition of public finances, an emergency supplementary budget was announced for 7 April.

[edit] See also

Life in Ireland
Culture
Economy                  
General
Society
Politics
Policies
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[edit] References

  1. ^ "Goal 2: People of Working Age". Department of Social and Family Affairs Annual Report. Department of Social and Family Affairs. pp. Page 24. http://www.welfare.ie/publications/annreps/06/index.html. 
  2. ^ Transport Research Laboratory (August 2003). Future Traffic Forecasts, 2002-2040 (pdf). National Roads Authority.
  3. ^ Comreg Quarterly Key Data Report. Page 11. Fig 2.1.3. [1]
  4. ^ Irish Government Broadband Information [2]
  5. ^ OECD broadband penetration and population densities [3]
  6. ^ Comreg Quarterly Key Data Report. Page 24. Fig 3.3.1. [4]
  7. ^ OECD roadband average monthly subscription price, Oct. 2007, USD PPP [ http://www.oecd.org/dataoecd/22/44/39575002.xls ]
  8. ^ Sunday Business Post [5]
  9. ^ a b c Howley, Martin, Fergal O’Leary, and Brian Ó Gallachóir (January 2006). Energy in Ireland 1990 – 2004: Trends, issues, forecasts and indicators (pdf), p10, 20, 26.
  10. ^ CIA (2006). Ireland The World Factbook. Retrieved on 6 August 2006.
  11. ^ Department of Finance. Banking in Ireland Report of the Department of Finance: Central Bank Working Group on Strategic Issues facing the Irish Banking Sector. Retrieved on 7 August 2006.
  12. ^ Adkins, Bernardine and Simon Taylor, (June 2005). Banks in Northern Ireland face Competition Commission investigation (pdf). Report & Review.
  13. ^ International Monetary Fund, (20 February 2001). Insurance Supervision Report on the Observance of Standards and Codes (ROSC): Ireland.] Retrieved on 8 August 2006.
  14. ^ Bord Bia (March 2005). Agri-Food Sector - Factsheet Irish Food Board. Retrieved on 8 August 2006.
  15. ^ Agri Vision 2015 Committee, (November 2004). Report of the Agri Vision 2015 Committee (pdf). p6.
  16. ^ World Resources Institute (2006). Forests, Grasslands and Drylands: Ireland. EarthTrends. Retrieved on 8 August 2006.
  17. ^ Heritage Council of Ireland. 1. Historical Context & 2. Ireland's Forestry Policy. Forestry and the National Heritage. Retrieved on 8 August 2006.
  18. ^ Indecon International Economic Consultants, for the Central Fisheries Board (April 2003). An Economic/Socio-Economic Evaluation of Wild Salmon in Ireland (pdf).
  19. ^ Newman, Harold R. The Mineral Industry of Ireland (pdf). U.S. Geological Survey Minerals Yearbook — 2001.
  20. ^ a b CIA (2006). Ireland The World Factbook. Retrieved on 8 August 2006.
  21. ^ Feehan, J, S. McIlveen (1997). The Atlas of the Irish Rural Landscape. Cork University Press.
  22. ^ Bord Gáis (2006). Natural Gas In Ireland. Gas and the Environment. Retrieved on 8 August 2006.
  23. ^ Economic Survey of Ireland 2006: Keeping public finances on track, OECD, 2006, http://www.oecd.org/document/50/0,3343,en_33873108_33873500_36173106_1_1_1_1,00.html, retrieved on 2007-07-30 
  24. ^ House slowdown sharper than expected, RTÉ, 2007-08-03, http://www.rte.ie/business/2007/0803/economy1.html, retrieved on 2007-08-06 
  25. ^ "About RTÉ". Rte.ie. http://www.rte.ie/about/index2.html. Retrieved on 2008-10-31. 
  26. ^ U.S. Census Bureau. Trade with Ireland : 2004. Trade in Goods (Imports, Exports and Trade Balance) with Ireland. Retrieved on 7 August 2006.
  27. ^ "Economist.com | Country Briefings: Ireland". Economist.com. http://www.economist.com/countries/Ireland/profile.cfm?folder=Profile%2DEconomic%20Structure. Retrieved on 2008-10-31. 
  28. ^ Coakley , Chris (31 August 2004). European citizens pessimistic about 2004: poll. Spring Day in Europe: Enlargement news. Retrieved on 7 August 2006.
  29. ^ Central Statistics Office, Ireland (June 2006). Measuring Ireland's Progress: 2005 (pdf). ISBN 0-7557-7142-7.
  30. ^ OECD. Country statistical profiles 2006: Ireland. OECD Statistics. Retrieved on 7 August 2006.
  31. ^ Finfacts Ireland. [6]. Retrieved on 10 August 2008.
  32. ^ Sunday Tribune. [7]. Retrieved on 10 August 2008.
  33. ^ Finfacts Ireland. [8]. Retrieved on 10 August 2008.
  34. ^ Citizens Information. [9]. Retrieved on 10 August 2008.
  35. ^ Government of the United Kingdom. tax and benefits. Retrieved on 10 August 2008.
  36. ^ Citizens Information. [10]. Retrieved on 10 August 2008.
  37. ^ Citizens Information. [11]. Retrieved on 10 August 2008.
  38. ^ Sep 25, 2008 (September 25, 2008). "AFP: Ireland is first eurozone nation in recession". Afp.google.com. http://afp.google.com/article/ALeqM5j9uch9QDg5jtnuh1jLjatAYpER6A. Retrieved on 2008-10-31. 
  39. ^ Andras Gergely (2008-10-01). "Irish finmin sees bank liquidity, not solvency issue". Reuters. http://www.reuters.com/article/bondsNews/idUSN0131770620081001. 
  40. ^ a b c Collins, Liam (2008-10-12). "Top developers see asset values dive two-thirds". Irish Independent. http://www.independent.ie/national-news/top-developers-see-asset-values-dive-twothirds-1496605.html. 
  41. ^ "Unemployment rising at record rate". RTÉ. 2008-10-01. http://www.rte.ie/news/2008/1001/jobs.html. 
  42. ^ "Irish Agricultural Land Research" (PDF). Savills Hamilton Osbourne King. May 2008. http://www.savills.ie/pdfs/articles/166.pdf. Retrieved on 2008-10-08. 
  43. ^ a b Morgan Kelly,Professor of Economics, University College Dublin. "Just How Sound is the Irish Banking System?" (PDF). http://www.ucd.ie/economics/staff/mkelly/papers/solvency.pdf. 
  44. ^ Oliver, Emmet (2008-08-31). "New waive of Irish banking". Sunday Tribune. http://www.tribune.ie/business/news/article/2008/aug/31/new-waive-of-irish-banking/. Retrieved on 2008-10-01. 
  45. ^ "Banks call in leading developers ahead of property write-downs". Sunday Tribune. 2008-10-12. http://www.tribune.ie/business/news/article/2008/oct/12/banks-call-in-leading-developers-ahead-of-property/. 
  46. ^ "AIB Half-Yearly Financial Report 2008". Allied Irish Banks. 2008-07-30. http://www.aibgroup.com/servlet/ContentServer?pagename=AIB_Investor_Relations/AIB_Press_Releas/aib_d_press_releases&cid=1216645875820&c=AIB_Press_Releas&channel=IRCA&position=first. Retrieved on 2008-09-18. 
  47. ^ "Reports and Accounts for the year ended 31 March 2008". Bank of Ireland. 2008-06-10. 73. http://online.hemscottir.com/ir/bir/ar_2008/ar.jsp?page=73&zoom=1.0&layout=single. Retrieved on 2008-10-11. 
  48. ^ "Another traumatic day for investors in Irish banks". Irish Times. 2008-10-07. http://www.irishtimes.com/newspaper/finance/2008/1008/1223335465924.html. Retrieved on 2008-10-07. 
  49. ^ "NIB figures hint at depth of bad debt problems". Sunday Tribune. 2008-10-12. http://www.tribune.ie/business/article/2008/oct/12/nib-figures-hint-at-depth-of-bad-debt-problems/. 
  50. ^ Dan Loughrey, Head of Group Corporate Communications (2008-09-19). "Bank of Ireland Statement". Bank of Ireland. http://www.bankofireland.com/press_room/latest_releases/2008/General_Content_1000328.html. Retrieved on 2008-10-11. 
  51. ^ "Government Decision to Safeguard Irish Banking System". Government of Ireland, Department of the Taoiseach. 2008-09-30. http://www.taoiseach.gov.ie/index.asp?locID=586&docID=4026. 
  52. ^ "Seven Deadly Sins... (of omission)". Sunday Tribune. 2008-10-05. http://www.tribune.ie/business/article/2008/oct/05/seven-deadly-sins-of-omission/. 
  53. ^ Anglo Irish directors step down, bank downgraded
  54. ^ Bank shares lose half their value in market 'carnage'
  55. ^ Charlie Weston (2008-10-11). "State mortgage plan for first-time buyers". Irish Independent. http://www.independent.ie/national-news/state-mortgage-plan-for-firsttime-buyers-1496202.html. Retrieved on 2008-10-11. 
  56. ^ "Economy's perfect storm". Irish Examiner. 2008-10-11. http://www.irishexaminer.ie/irishexaminer/pages/story.aspx-qqqg=ireland-qqqm=ireland-qqqa=ireland-qqqid=74580-qqqx=1.asp. Retrieved on 2008-10-11. 
  57. ^ [12] The Times, Ireland's economy loses coveted AAA rating

Print

  • O'Kane, Brian. Starting a business in Ireland - Oak Tree Publishing, 1993, 1995, & 2001. ISBN 1-872853-94-3
  • O'Grada, Cormac Rocky Road: Irish Economy Since Independence - Manchester University Press, 1997. ISBN 0-7190-4584-3
  • O'Hearn, Denis. The Atlantic Economy: Britain, the US and Ireland - Manchester University Press, 2001. ISBN 0-7190-5974-7
  • Burke, Andrew E. Enterprise and the Irish Economy - Oak Tree Press in association with Graduate School of Business, University College Dublin, 1995. ISBN 1-86076-004-X

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