LONDON: To the relief of its creditors, Ireland is showing the rest of the struggling euro zone periphery that fiscal and wage discipline will eventually be rewarded by the bond markets, if not appreciated by the man in the street.
A less heartening lesson is that throwing away the crutch of IMF and EU support, as Dublin is likely to be able to do later this year, is no ticket back to pre-crisis prosperity: nations on the euro zone's rim have dug a debt hole so deep that they face years more of morale-sapping austerity and sub-par growth.
"In all of these countries, it's going to take the rest of the decade to bring debt down to more comfortable levels," said Douglas Renwick with Fitch Ratings in London.
Take Ireland itself.
The country is held up as a model pupil for the way it has complied with a loans-for-reforms rescue programme agreed with the 'troika' of the International Monetary Fund, the European Union and the European Central Bank after a banking crisis toppled its economy in 2008.
The country has recorded a current account surplus in the past three years. Imports have suffered but Ireland has also ramped up exports by cutting wages.
Its real effective exchange rate, measured by comparing Ireland's unit labour costs against those of its trading partners, tumbled 28.5 percent between 2008 and 2011, according to the IMF.
That restoration in competitiveness is testament to a labour market that is much more flexible than those of Spain, Italy, Portugal or Greece. Ireland is also benefiting from long-standing policies that have lured multinational manufacturers.
It has a very low corporation tax, its investment in education has produced a skilled work force, and it has used EU structural funds well to build infrastructure.
As a result, its exports of goods and services reached 107 percent of gross domestic product in 2011, compared with 36 percent in Portugal and 30 percent in Spain, according to the World Bank.
FISCAL REALISM
On the fiscal front, too, Ireland has set an example by picking judicious deficit reduction targets. Despite a string of early setbacks in judging the extent of the banking crisis, it has largely hit its goals, earning it credibility in the markets and goodwill from its creditors.
Other countries with more ambitious, front-loaded targets have suffered significant slippage in some cases - not helped by the fact that they embarked on deficit-cutting later than Ireland when economic and market conditions were much harsher, Renwick said.
"One of the lessons to be learned is to set credible deficit targets that are realistically achievable. And when you achieve those targets, you're anchoring expectations and giving the strong impression that the adjustment is on track," he said. So far so good.
What's more, a deal last week to ease the burden of debts the state incurred to save its banking system in 2008 should pave the way for Ireland to be the first bailed-out euro zone country to wave goodbye to the troika.
Despite that agreement, though, the government's debt will remain around 120 percent of GDP and total debt to the non-financial sector of the economy is around 400 percent of GDP.
"Excessive levels of debt act as a major constraint on economic growth and negatively impact on all economic sectors," according to Ireland's National Competitiveness Council.
indiatimes.com
A less heartening lesson is that throwing away the crutch of IMF and EU support, as Dublin is likely to be able to do later this year, is no ticket back to pre-crisis prosperity: nations on the euro zone's rim have dug a debt hole so deep that they face years more of morale-sapping austerity and sub-par growth.
"In all of these countries, it's going to take the rest of the decade to bring debt down to more comfortable levels," said Douglas Renwick with Fitch Ratings in London.
Take Ireland itself.
The country is held up as a model pupil for the way it has complied with a loans-for-reforms rescue programme agreed with the 'troika' of the International Monetary Fund, the European Union and the European Central Bank after a banking crisis toppled its economy in 2008.
The country has recorded a current account surplus in the past three years. Imports have suffered but Ireland has also ramped up exports by cutting wages.
Its real effective exchange rate, measured by comparing Ireland's unit labour costs against those of its trading partners, tumbled 28.5 percent between 2008 and 2011, according to the IMF.
That restoration in competitiveness is testament to a labour market that is much more flexible than those of Spain, Italy, Portugal or Greece. Ireland is also benefiting from long-standing policies that have lured multinational manufacturers.
It has a very low corporation tax, its investment in education has produced a skilled work force, and it has used EU structural funds well to build infrastructure.
As a result, its exports of goods and services reached 107 percent of gross domestic product in 2011, compared with 36 percent in Portugal and 30 percent in Spain, according to the World Bank.
FISCAL REALISM
On the fiscal front, too, Ireland has set an example by picking judicious deficit reduction targets. Despite a string of early setbacks in judging the extent of the banking crisis, it has largely hit its goals, earning it credibility in the markets and goodwill from its creditors.
Other countries with more ambitious, front-loaded targets have suffered significant slippage in some cases - not helped by the fact that they embarked on deficit-cutting later than Ireland when economic and market conditions were much harsher, Renwick said.
"One of the lessons to be learned is to set credible deficit targets that are realistically achievable. And when you achieve those targets, you're anchoring expectations and giving the strong impression that the adjustment is on track," he said. So far so good.
What's more, a deal last week to ease the burden of debts the state incurred to save its banking system in 2008 should pave the way for Ireland to be the first bailed-out euro zone country to wave goodbye to the troika.
Despite that agreement, though, the government's debt will remain around 120 percent of GDP and total debt to the non-financial sector of the economy is around 400 percent of GDP.
"Excessive levels of debt act as a major constraint on economic growth and negatively impact on all economic sectors," according to Ireland's National Competitiveness Council.
indiatimes.com
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