Could Ireland Go Bust and Become the Next Iceland?
The brave new world has already arrived in Ireland, where your co-editor is currently based. Ireland exemplifies the boom-bust economics that has shattered the global economy.
When I left the country in 2006, the place was awash with excess – property developers ferried themselves around in helicopters, private bars served €20 cocktails, the roads were full of top-of-the-range BMWs, Mercedes and Aston Martins. Now the bubble has burst and the Irish are baying for blood.
Ireland’s fall from grace was nothing if not spectacular. According to The Economist, the economy probably shrank by 2.5% in 2008 and may contract by another 6.5% this year. Unemployment has jumped from 5% to 10.4%, faster than America’s decline. Meanwhile, Irish banks are blighted by souring property loans. And a crisis in public finances has forced the government to add an extra income tax levy on all its citizens to plug a hole in the public finances.
Of course, all this is putting huge pressure on Irish sovereign debt. The yield on Ireland’s ten-year government bonds, at about 6%, is way above that of Germany, at about 3.2%. And the state has gone even further than the US in guaranteeing banks’ toxic debts worth two to three times annual GDP. According to Goldman Sachs, total losses could reach $27 billion, or 10% of GDP.
The federal budget deficit is expected to be $1.8 trillion this year. That is $6,000 for every man, woman and child. Does anyone think this living beyond our means is money well spent? Sent your comments, thoughts and rants to firstname.lastname@example.org.