The UNDP has just released its 2011 Human Development Report.
I hope we shall all be cheered up to see that Ireland has moved up the league table over the years and now ranks seventh in the world on their Human Development Index.
Author: Brendan Walsh
Many will have heard Alan Ahearne on Morning Ireland explain why we should try to work our way out of the crisis by ‘sticking to the plan’. He clearly believes that the Eurozone will survive in its present form and that the costs of Ireland defaulting and/or unilaterally leaving the currency union would far outweigh the benefits.
In their recent ESRI publication, John FitzGerald and Ide Kearney set out in some detail why they believe the Irish debt problem is manageable and why we should should stick to the plan. This was already posted by Philip Lane and has been discussed here.
Nouriel Roubini, on the other hand, believes that ‘sticking to the plan’ has no chance of working in Greece, so it should organize an orderly default and re-introduce the drachma. Some of the arguments he makes are compelling and many of them apply with some force to Ireland, especially the difficulty of restoring competitiveness and growth through a deflationary internal devaluation.
We need to evaluate the prospects for the Eurozone and our place in it.
I am surprised at the absence of any discussion here of recent developments in the soverign debt market.
Irish bond yields peaked in mid-July, when the 10-year yield reached 14.0% and the 2-year 23.0%.
Today the 10-yield has fallen to 8.9% and the 2-year yield is down to 8.5%.
Meanwhile, the Greek 10-year yield is now at a new peak of 18.3%, while the Portuguese 10-year yield is 11.1%.
In a recent Blog on Reuters, ‘Europe’s Dangerous New Phase‘, which also appeared as an article in the Financial Times (July 18th), Lawrence Summers claimed that
“… no country can be expected to generate huge primary surpluses for long periods for the benefit of foreign creditors. Meeting debt burdens at rates currently charged by the official sector for credit – let alone the private sector – would involve burdens on Greece, Ireland and Portugal comparable to the reparations’ burdens Keynes warned about in The Economic Consequences of the Peace.”
The economic history behind these comments is shaky. Total reparations demands made on Germany in the Versailles Treaty were in the region of 132 billion Marks, equivalent to over €600 billion in today’s money. This was about four times Angus Maddison’s estimate of Germany’s GDP in 1919. The burdens placed on Greece, Ireland, and Portugal today are not comparable. Moreover, President Clemenceau wanted to reduce post-war Germany to an impoverished agricultural nation, whereas all President Sarkozy wants to do is to raise our corporation income tax rate.
More importantly, though, it is wrong to claim that ‘no country can be expected to generate huge primary surpluses for long periods for the benefit of foreign creditors’. Ireland did exactly that to get out of the mess we were in by the mid-1980s. We ran a primary budget surplus for over 15 years – from 1984 to as recently as 2007. This surplus exceeded 7% of GDP for several years at the turn of the century and helped us reduce our debt/GDP ratio from a peak of 120 per cent in 1986 to less than 25 per cent in 2007. Foreign borrowing had been paid off by 2002.
In a recent article in the Sunday Business Post Dónal de Buitléir makes the case that the challenges facing us now are more manageable that those we overcame in the 1980s.
To take our minds off the heavier economic / financial topics for a while I thought I would share some thoughts provoked by the Annual Summary of Vital Statistics for 2010 published at the end of June. Taken in conjunction with the preliminary results of the 2011 Census, it reveals some surprisingly positive trends for a country in the throes of a very deep recession.
Our birth rate is holding up despite the surge in unemployment and the resumption of net emigration (even if at a more modest rate than previously feared).
Over 75,000 births were registered in 2008 – almost 60% more than in 1994 and the highest number recorded in modern times. However, this was probably the peak, as the annual total for 2010 was 2% lower than that for 2008, while the 2010Q4 figure was 4% lower than the corresponding figure for 2008.
The surge in births will have far-reaching implications for the economy’s medium-term prospects. Most immediately it is placing pressure on the educational system, but over the longer run it could be argued that our relatively youthful population will bestow a competitve advantage relative to the rest of Europe, where the ageing of populations is becoming an acute problem.