THE IRISH DEBT CRISIS

The end for the Celtic Tiger or the beginning of its recovery?

The general media (particularly in the UK) is full of ‘doom and gloom’ over the pitiless state of Irish economy. Certainly there can be no doubt that there was severe mishandling with respect to the mostly self-inflicted banking crises caused by over generous loans afforded to Irish home owners by Ireland’s big two banks, the Bank of Ireland and the Allied Irish Bank but even more so by the commercial loans given to property developers by the smaller Anglo Irish Bank. In précis, Brian Cowen (The Irish Prime Minister or Taoiseach) of the Fianna Fáil Party (The principal governing of Ireland for almost the last 18 years) together with his predecessors failed to stem the quite obvious property ‘bubble’ that had been developing throughout the Celtic Tiger years – In parts of Dublin, both residential and commercial properties multiplied in value often overtaking their counterparts in much bigger cities such as London, New York or Paris. Why? Well, like so many governments and people before them Fianna Fáil, became used to the very substantial revenue streams received from Ireland’s high stamp duties (up to 9%), whilst the fact that many Party aficionados were closely connected to very large construction firms certainly didn’t help matters either.

‘Humiliation’ yes but Ireland is still no Greece, Portugal or indeed Spain!

There is no doubt that the largely uninformed pundits are having a field day along the lines of “I told you so”! However, on analysis there are a number of very important differences between Ireland and the other peripheral countries – One is that the €90 billion in loans are not really loans as such (Ireland has some €20 billion in reserve) but a credit line and would only be called upon to any great extent in the most dire of circumstances. Second, the fundamentals of the Irish economy are incredibly strong; it is still Europe’s highest per capita net exporter, has attracted over 30 multi-national firms in the last 6 months whilst the extremely painful readjustments to the economy have resulted in Ireland regaining much of its competitive edge. Notwithstanding the property ‘bubble’, Ireland – unlike Greece, Portugal or Spain – has a state of the art economy together with a history of taking the necessary measures when times get hard! Whilst times will be tough for those with Irish property and those earning an income in Ireland, it is actually a more attractive location than ever for those seeking a low corporate tax base. Although many in the media are claiming that Ireland may have to renounce its low corporate tax policy due to the EU/IMF credit line, in reality this would not happen as if ‘push came to shove’ Ireland would pull out of the Euro Zone and little short of an invasion could change this highly successful policy.

To conclude, Ireland is down but not out and this firm is of the view that it will be back on a firm financial footing within 5 years very much in the way the United Kingdom pulled back from its IMF Loan in 1976. In retrospect, this period will no doubt be seen as the ideal time to invest in Ireland especially its property market were many properties are now being sold below their build price!

Good Luck Ireland