The Euro-Zone is falling apart country-by-country. We've written about the panoply of problems facing Greece, Portugal and Great Britain (http://markostake.blogspot.com/2010/03/soverign-debt-redux-spill-over.html).
Ireland is also suffering and perhaps as badly as Greece (http://markostake.blogspot.com/2010/03/greek-crisis-threatening-global.html).
Ireland's deeper recession continued in the fourth quarter of 2009, as the economy shrunk another 2.3%, as the result of devastating floods in the west of the country and a steep decline in building activity, following the crash in real estate.
This marked a reversal from the third quarter, which had shown a small increase in Gross Domestic Product (GDP) of 0.3% – giving rise to false optimism that Ireland had come out of recession. Third quarter GDP was later revised to a negative 0.1%.
Minister of Finance, Brian Lenihan, said the year-on-year GDP decline of 7.1% was “marginally better” than the estimate at the time of the budget in December of 7.5%.
Economists, however, were more gloomy. Alan McQuaid, of Bloxham Stockbrokers, said “not only did Ireland not come out of recession in Q3, but it actually went into a deeper downturn in the final quarter”.
He calculated the cumulative decline in GDP since the end of 2007 was a “staggering” 12.7%, more than double the rate of the slowdown in the Euro-Zone as a whole!
Ireland is particularly beset with fall-out from the "boom-bust" in real estate. Officials estimate the number of house completions in 2009 at 26,000, half the 52,000 built in 2008. With an overhang supply of 120,000 houses for sale or rent, not including vacant homes, the rate of housebuilding in 2010 is expected to halve again.
At the height of the boom in 2007 there were 87,000 houses built in Ireland. This compares with England and Wales, an area with 13 times the population, where house building is running at about 150,000 units a year.
Finance Minister Lenihan warned on Tuesday that the nation faced “the challenge of [its] life”, as he slapped higher taxes on the middle classes in an emergency budget aimed at tackling the spiralling economic crisis.
Mr. Lenihan outlined plans to set up a national asset management agency to take over an estimated €80 billion-€90 billion of bad loans extended by local domestic banks to developers and property companies that now look as if they will not be able to repay.
Forecasting an 8% drop in Ireland’s GDP this year, Lenihan said he had to tackle soaring government borrowing and called on political opponents to “set aside narrow sectional interests” and support the tax increases, which are highly unpopular domestically.
Rating agency Standard & Poor’s recently downgraded Ireland’s sovereign debt. Even after Tuesday’s measures, Mr Lenihan forecast government borrowing would be the equivalent of 10.75% of GDP – more than 3 times the limit on countries joining the Euro.
So, unhealthy countries continue to get less healthy. Tragically, this vicious cycle is threatening the entire Euro-Zone and is making it impossible for the EU, as a whole, to provide emergency aid. As a result, the situation threatens to be a contagion to the entire global financial community.
If you're wondering about the legality of the Personal Income Tax, our latest video blog will be posted in the next several days covering this complex topic as we head into tax season. To view our current YouTube videos, you can visit them here http://www.youtube.com/markostaketv.