[lbo-talk] FT's Lex: Euro-deflation

[Philip Pilkington]

>
> Ireland shows the problem writ large. Since 2000, its relative wage costs
> have risen by 20 percentage points versus Germany. (Greek wage costs have
> risen by about 5 points.) Export performance has been further hurt by the
> weakening currencies of two of its major trading partners, the US and the
> UK. That is why Brian Lenihan, the Irish finance minister, lashed out at the
> UK, saying the pound's fall had caused Ireland "immense problems". The quick
> solution would be for Ireland to devalue too. As a euro member, it cannot.
> Instead it has to deflate.
>
>
Ireland is in a really bad situation at the moment. We essentially
squandered what wealth we acquired during the so-called "Celtic Tiger" on
building low-quality, soon-to-be derelict apartment blocks and houses which,
predictably enough, lined the pockets of the wealthy elite (who are
extremely tightly integrated), indebted the middle-class-aspirant latecomers
who thought that they could get in on the action and, of course, dare I
forget the lower-classes who either bought at overinflated prices or
remortgaged to add value to their new "asset" - thank you short-sighted
neo-liberal policy makers.

Because we squandered this wealth we failed to build sufficient
infrastructure to secure our foreign investment, which is looking a lot more
shaky than before; we just stuck to the low corporation tax model and hoped
for the best. Now that we need massive amounts of cash to prop up failing
banks (which were riddled with corruption and everyone knew it..), thinking
about deficit spending is not even an option. I'm already hearing talk of
our having to turn to the IMF; we who thought ourselves affluent and
successful. Couple this with the above mentioned deflation - which I'm
already seeing on ground level - and you've just cooked up a hot pot of pure
bad.

It looks like Ireland, the poster child of neo-liberalism, the country which
had finally seemed to have risen to a level of sovereignty which it had long
desired, not through revolt and car-bombs, but through free-market
economics, is about to learn the harsh lessons dished out after a binge of
short-sighted policy-making, political apathy and corrupt cynicism. We
tasted the fruits of unrestrained wealth, now it looks like we're going to
have to live on the blighted potatoes grown amidst an economic depression...