Ireland fell down hard in the 2008 global finical crisis. It had gone from one of the golden children of Europe to the outskirts with the other PIIGS (Portugal, Italy, Ireland Greece, Spain).
The government had to be bailed out and devastating spending cuts commenced. Every sector of Irish society was hit. For example, labor costs were brought down in Ireland in a massive deflation that resulted in a 20% plunge in nominal gross domestic product between 2008 and 2011. Unemployment shot up to record heights.
A few years later, Dublin has been labeled “the poster child for austerity” for its capacity to implement €28.5billion in tax rises and spending cuts while continuing to modestly grow its economy and maintaining social cohesion. However, the Irish public would not be so quick to praise their government. When Prime Minister Enda Kennedy made the cover of TIME magazine in October, there was at best mockery and at worst public outcry amongst the Irish people. They don’t see their leader as a success but a sort of puppet for Germany and the EU. They believe Kenny is cut from the same cloth as the hapless bankers and politicians that got them into this mess in the first place. The Irish people can’t understand why Kenny is receiving outside praise with all these cuts and unemployment but it must be remembered that sometimes, the external spectator has a better view of the game. It is harder to judge what is happening accurately when it’s directly impacted you and your loved ones lives. Outsider can make a clearer judgment because they can look at the situation almost mathematically.
The difference between Ireland and the other so-called PIIGS is a far more flexible labor force and significantly lower tax rates than the rest of Europe, according to BCA. “The Irish experience suggests that while fiscal austerity is important, euro zone troubled economies may be well served to focus their policies on labor market flexibility and the corporate tax system,” the experts state.
This difference is means that while in Spain and Greece, the country’s engine is broken, Irelands is still just about running but it is fragile. The wider slowdown across the Eurozone is beginning to undermine its delicate economic recovery.
As the Irish austerity measures continue, the IMF has now warned against blowing out the weakly flickering flame of recovery through austerity. They advise Dublin to hold off austerity measures if Ireland fails to meet modest growth targets for 2013. “If next year’s growth were to disappoint, any additional fiscal consolidation should be deferred to 2015 to protect the recovery,” said Mr. Lipton stated following distribution of €0.89bn bailout funds to Ireland.