A few impressions on the way back from Ireland

Ireland is not Greece, and it will get out of the mess keeping the head up, paying back all its debt no matter the time it will take. It is at least what a lot of Irish people think, even if austerity is only starting to hit the population. Most of the measures enforced until now were aimed at reducing public services. This was not that hard to accept in a country whose model is the USA, so only civil servants really had a reason to complain. And when the constant increase of university fees is mentioned (the last in date being an increase from 2000 to 3000 euros for one year of bachelor level), most of the people comment that “it’s okay, it is so much more in the USA for example!”.

Luckily, Ireland is competitive, and that is why everything is fine. One of the most cherished thing in modern Ireland is the 12,5% corporate-tax rate, to compare with a 20 to 35% rate elsewhere in Europe. And for a reason : this “competitive advantage” is the engine of the new irish economy. The island seems to be the european platform for the “2.0” american corporate world, cheered not to be robbed by the State : the words “Google”, “Facebook”, “LinkedIn”, “Microsoft” and cie are present in every three sentence of discussions and newspapers. And not without some pride. This is well worth a few presents, like for example letting Google, a not so desperate company, pay not more than 3% tax on its profits… Ireland is competitive and that is why it will get out of the mess. When one remembers the poverty of the 80s, these few concessions still seem worth it for the middle class household.

Moreover, the big choc is already behind for Ireland. Apocalypse took place in 2008 and 2009. The burst of one of the most magnificent housing bubble in history is already something from the past, and the change in the situation is now finally accepted. The ten years of mass hysteria are now lying on the couch, and everyone shows wisdom to accept the return to reality and understand what happened.

But some details are quite inconvenient when one tries to look further.

The boom years are now behind, true. But especially for those who managed not to take a mortgage between 2002 and 2008. The others, having bought one or more houses, on credit, will need a long time to see those years really behind. And this is a huge lot of people. Their house is now worth less than half of the price they signed for and promised to pay back to the bank, and the value keeps diving. But the banks, of course, want to get the whole loan back. And the irish law is on their side.

In the USA, during the “sub-prime” housing crisis, it was possible to give back the keys of the house and get rid of the loan to start a new life somewhere else. This option doesn’t exist in Ireland. If someone wants to leave his home, he nevertheless will have to pay 100% of the loan back. Discussing the matter with someone in this situation is taking a look in an abyss, the exact symmetric from the peaks of the financialized economy.

Of course the subject is everything but black and white. Raising the issue of responsibility requires a big assembly of sociologists, economists, philosophers, and advertisement specialists, if possible interesting and of integrity. But for a start, just raising frontally the issue would not be a bad thing.

Especially when blank checks from the taxpayer are signed one after the other to the financial industry of Ireland. Is it necessary to remind that the huge increase of the irish public debt is for a big part due to unlimited guarantees offered by the state to the big banks of the country, in order to ensure the “stability” of their risky assets?

And this process is not going to stop tomorrow : the irish banks still have more than 400 billions euros of loans to households and non-financial firms in Ireland, which amounts to more than 240% of the Irish GDP (this figure was 60% in 1997). With arrears on mortgages steadily rising, now at almost 10%, future losses for banks coming along with future bailouts from the taxpayer are almost certain.

But for the moment, everyone wants to believe to a way out. Nothing is really certain, and hope dictates to consciously open the wallet and contribute to pay back the debt through austerity. If a strong growth comes back, maybe we will see a miracle happen, and it will be possible to go further on the way to the american dream.

So there is no alternative : the beloved competitiveness has to be protected at all cost, if not improved. And then, just wait and hope, in the shadow of a huge mountain of debt, much higher than its greek little sister, once added household, state and financial debts.


Chronicles of a European Winter

March, 5th 2012

On the way back from two weeks in Ireland


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