Ireland Still Long Way from Overcoming Debt Crisis [Spiegel]
June 5, 2012 Leave a comment
Irish voters have approved the fiscal pact in a closely watched referendum, to the relief of European leaders. But the country is still a long way from solving its debt crisis, and its banks will soon need additional billions in fresh capital.
Henry Healy spent March 17, St. Patrick’s Day, at the White House in Washington. His distant cousin Barack Obama had invited him. The US president has Irish roots on his mother’s side of the family. “We went to a bar for a pint of Guinness,” recalls Healy.
Last week, however, Healy, an accountant from the small Irish town of Moneygall, was no longer in a celebratory mood. “Joined the ranks of the recession brigade today!! #unemployed,” he wrote in a Twitter message. His employer, an Irish supplier to the construction industry, had laid him off after six years. It was probably inevitable, Healy says without bitterness, pointing out that “the construction industry in Ireland is rapidly downsizing.”
Healy is one of hundreds of thousands of Irish who have lost their jobs. Since 2008, Ireland has been struggling to overcome the financial crisis — and can’t seem to get back on its feet. The unemployment rate has stagnated at roughly 14 percent for months on end. Many young Irish have decided to leave the country altogether.
In 2010, the European Union had to support the country to the tune of €67.5 billion ($84 billion). Ireland’s local banks had gambled and lost on real estate loans, and had been bailed out with comprehensive state guarantees. Soon thereafter, the Irish and their fellow Europeans throughout the continent had great hopes that the worst was over. Recently, the Irish were considered a paragon for the entire euro zone. In 2011, the economy even grew, albeit only by 0.7 percent. But such confidence proved illusory.
As things now stand, Ireland will have to be bailed out a second time. The banks have proven to be a bottomless pit. They have to be recapitalized once again. The previous write-downs of the 10 largest consumer banks, amounting to €118 billion, are still not enough.
The country’s financial woes were also the main topic of last Thursday’s referendum, in which the Irish voted on the European fiscal pact. The majority of voters reluctantly backed the pact, initiated by German Chancellor Angela Merkel, which aims to impose budgetary discipline on countries and prevent the excessive accumulation of debt. Ultimately the Irish were motivated by the fear that the Europeans would otherwise cut off the flow of money.
On the evening before the referendum, European Affairs Minister Lucinda Creighton was still canvassing door to door in her Dublin electoral district to discourage voters from supporting the “no” campaign. The politician relentlessly pointed out to the many skeptics that Ireland will need €18 billion in 2014. It will take €10 billion, for instance, to pay teachers’ salaries and support the unemployed, she argued. The opponents of the fiscal pact, she argued, couldn’t say where the money is supposed to come from.