What was Ireland's problem?

Quote from FerdinandAlx:

Governments provide the necessary infrastructure for the private sector to operate. They do this by providing jobs in the military, in law, in regulation, in education, health care and other vital sectors of the economy. Government intervention can sometimes be harmful to economic growth, but some level of intervention is a requirement for growth.

The Irish had an economic model that was very successful for a time: they attracted foreign business through attractive tax rates and they grew domestic investments and spending through financial services and real estate. As a result of the financial crisis they found out that more government intervention would probably have been a real asset to their economy though. Their economic model produced an oversupply in real estate and in the financial debt that was used to finance it. A well managed government could have steered their economic development into a more rational and sustainable direction.

Right now other European countries are trying to force them to increase taxes. They want Ireland to close their budget gap. I don’t think this is a very good idea as it will hurt their economy really bad. If GDP drops further this means that the ratio of (private) debt to GDP increases further. Unlike the Tea Party I like deficit spending. Like the Tea Party I like tax cuts though. Ireland would do best to eliminate corporate taxes but maintaining spending. The financing for this should be provided by marking up some numbers in Ireland’s account at the European Central Bank. This will prevent a deflationary depression in Ireland.
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"Governments provide the necessary infrastructure for the private sector to operate. They do this by providing jobs in the military, in law, in regulation, in education, health care and other vital sectors of the economy."

wrong. your definition is exactly why the US and their European allies are in deep trouble. politicians consider nearly every section of the economy to be vital. therefore by your reasoning the phone companies and the railroads should be owned by the government. every health provider should be a government employee. farmers that feed us should be government employees. by your line of reasoning the private sector would be very small and/or non existent. you have given the definition of socialism not capitalism.

I suggest that both of you read milton friedman's capitalism and freedom for an understanding of the superiority of free markets and a very limited role for governments.
 
Quote from Covertibility:

First, people on this site are retarded, which is why I like this site as it's a comedy goldmine.

2nd, Ireland's problems were not government debt.

Eating the Irish

Before the bank bust, Ireland had little public debt. But with taxpayers suddenly on the hook for gigantic bank losses, even as revenues plunged, the nation’s creditworthiness was put in doubt. So Ireland tried to reassure the markets with a harsh program of spending cuts.

Step back for a minute and think about that. These debts were incurred, not to pay for public programs, but by private wheeler-dealers seeking nothing but their own profit. Yet ordinary Irish citizens are now bearing the burden of those debts.

Or to be more accurate, they’re bearing a burden much larger than the debt — because those spending cuts have caused a severe recession so that in addition to taking on the banks’ debts, the Irish are suffering from plunging incomes and high unemployment.

But there is no alternative, say the serious people: all of this is necessary to restore confidence.

Strange to say, however, confidence is not improving. On the contrary: investors have noticed that all those austerity measures are depressing the Irish economy — and are fleeing Irish debt because of that economic weakness.

Now what? Last weekend Ireland and its neighbors put together what has been widely described as a “bailout.” But what really happened was that the Irish government promised to impose even more pain, in return for a credit line — a credit line that would presumably give Ireland more time to, um, restore confidence. Markets, understandably, were not impressed: interest rates on Irish bonds have risen even further.

Ireland is now in its third year of austerity, and confidence just keeps draining away. And you have to wonder what it will take for serious people to realize that punishing the populace for the bankers’ sins is worse than a crime; it’s a mistake.

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If FOXNews blames Ireland on govt programs then it must be true...

FOXNews the early years:

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Can't believe people fell for that. lol
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""First, people on this site are retarded, which is why I like this site as it's a comedy goldmine."

you are using the word retarded incorrectly. depending on your preference ignorant or unfamiliar or clueless are more useful in this context.

"And you have to wonder what it will take for serious people to realize that punishing the populace for the bankers’ sins is worse than a crime; it’s a mistake."

I assume the words crime and mistake should switch positions. people are usually forgiven for mistakes but not crimes.

the word crime should have been followed by a period.


more importantly you are correct in your assessment of the situation. making the taxpayers pay for the follies of the bankers is a major mistake. it is an old story of socialism for the rich and capitalism for the poor. the end result is always a misallocation of resources and excessive risk taking in the private sector if they know they are going to be bailed out by the government. of course
the government sector in Ireland as nearly everywhere is bloated with an excessive number of employees with excessive salaries and benefits.
 
What went wrong?

In 1999 the relatively poor and 'emerging' economies of Ireland, Portugal, Spain and Greece abandoned control over their own monetary policies, and instead adopted the monetary policy of an already wealthy, but slow growth economy called Germany.
This is also referred to as the introduction of the Euro.

The resulting reduction in interest rates caused very predictable asset bubbles in the property markets of these poorer countries.

When the global economy eventually slowed in 2008, these asset bubbles popped.

The result left many financial institutions holding large amounts of bad debt.
Given the choice between propping up their banks or allowing them to go bankrupt, many governments decided that propping up their banks with pubic money was the least worst option.
 
I observed same conditions cross entire EUR zone, but some countries were keeping falling into debts traps, yet other countries were thriving on similar monetary conditions.

Stop blaming others, look within, clearly they didn't learn their lessons from potato famine.
 
Quote from zdreg:

"Governments provide the necessary infrastructure for the private sector to operate. They do this by providing jobs in the military, in law, in regulation, in education, health care and other vital sectors of the economy."

wrong. your definition is exactly why the US and their European allies are in deep trouble. politicians consider nearly every section of the economy to be vital. therefore by your reasoning the phone companies and the railroads should be owned by the government. every health provider should be a government employee. farmers that feed us should be government employees. by your line of reasoning the private sector would be very small and/or non existent. you have given the definition of socialism not capitalism.

I suggest that both of you read milton friedman's capitalism and freedom for an understanding of the superiority of free markets and a very limited role for governments.
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There's a popular myth that all economic growth comes from the private sector, that governments necessarily work inefficiently, that government intervention is always harmful. I think Friedman has provided us with some great insights into the functioning of markets and the value that markets provide. I'm not a socialist and I don't subscribe to the idea of a collectivist utopia. I think that government should be limited to those services that it is able to uniquely provide as a monopoly of force. This does include economic policy making, market and financial regulation, research spending for the military and sciences, providing physical infrastructure such as roads and railways, the protection of strategic industries such as agriculture and steelmaking among other things. These are all pretty run off the mill. People support those government services even if they would make an ideological statement such as "all growth comes from the private sector". They support them because one by one they're all reasonable services to be provided by the government.
 
Quote from number22:

I observed same conditions cross entire EUR zone, but some countries were keeping falling into debts traps, yet other countries were thriving on similar monetary conditions.

Stop blaming others, look within, clearly they didn't learn their lessons from potato famine.
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European monetary policy is designed to suit the largest part of the European economy, ie. Germany, France and Benelux. Those countries have done pretty well as a result.
For the fringe countries, a centralized monetary policy is either too hot or too cold.

This book sums up the situation pretty well:

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Can anyone tell me what the terms were for Irish home buyers? Did they have no doc, no down payment loans like the US? I ask because I believe in learning from the mistakes of others. I ask because some feel that Canada has a bubble housing market. But they require down payments and have no tax write offs for home owners as the US does.
 
Their problem was that their banks made giant loans on incredibly overvalued and risky real estate in a bubble. Consider what happened to people in 2000 who were long pets.com on full margin, then expand that to an entire national banking system - they are completely wiped out because of the crash in house prices.

The government then tried to delay the inevitable collapse by guaranteeing all private sector deposits - this simply transferred the losses from the banking sector to the state budget and hence to all the taxpayers in Ireland. The amount is way too big for them to have any hope of repaying. So now not only are they having a huge recession, but they are going to either default on their debt or be experiencing crushing debt repayments for a generation.

The cause of it is simply the stupidity of humans - most people are notoriously bad at handling bubbles - and the existence of fractional reserve banking. Full reserve banks can't be leveraged and hence can't go bust if a market collapses.
 
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