Could it be that Ireland has passed through the worst of the storm? Writig in the Financial Times yesterday David Vines and Max Watson argue that maybe, just maybe, it has.
[T]he first and most important thing about Ireland is that it is swiftly restoring its competitive edge. Indeed it is moving rapidly towards a sizeable current account surplus – in a range of 3 to 4 per cent of gross domestic product. Of course, recession has also played a role in turning external accounts around, but a steady uptrend in exports has been underway for some time. The second element is that Ireland’s net public debt will probably peak at somewhere around 110 per cent of GDP. This is a steep challenge; but it is a magnitude that Ireland, among other advanced countries, has shown to be entirely scalable in the past. It is increasingly clear, too, that Ireland does not need to borrow from markets until 2014: that is the sort of borrower that markets can relearn to love. The third issue is Ireland’s banking saga. The Achilles heel of the economy lay in bad bank governance and supervision, and a subsequent hard landing that neither the authorities nor the International Monetary Fund saw coming. But today there is a growing recognition that this corner has been turned. Steps were finally taken at the end of March to cauterise the problem with recapitalisation based on a tough set of stress tests; and a sharp division of core from non-core assets in the two “pillar” banks that are left. The recent success in keeping Bank of Ireland in private hands is also a major psychological boost. […] As a result of all this growth is starting to re-emerge, even though domestic demand is still contracting. As expansion accelerates, it will generate jobs only slowly. But with the speed and slope of correction in competitiveness that is under way, the feed-through to domestic demand and job creation will come. And over the next few years a socially more sustainable balance to the recovery will also end up swelling the tax base more strongly than the present pattern of export-led growth. For the pressured taxpayer, there is a glimmer at the end of the tunnel.
I must say that after years of terror and pity even modest measures of optimism seem like so much crazy talk. But, lord knows, let’s hope the authors – Oxford University economists – are correct. I leave it to readers better-versed in economics to judge the matter…
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