An old Irish song sums up the nation's economy: She's the most distressful country that ever yet was seen.
Ireland down but still full of fight
An old Irish song gets the current state of the country's economy just about right. "She's the most distressful country that ever yet was seen," the ditty goes. And sure she is: distressful, distressed and downright double-dip depressed. In the past couple of weeks, Ireland has revealed the full extent of the problems facing the former Celtic tiger: an economy that, far from responding to the most severe austerity package adopted by any European state, actually fell back into recession; and a financial black hole big enough to swallow the Irish banking system, even the country itself.
Finance ministers are not normally given to hyperbole, but Brian Lenihan, the Irish government member responsible for managing the crisis, warned last week that failure to master the problems of Anglo Irish Bank would "bring down Ireland". I visited Anglo Irish a few times in the "tiger" years to interview its then chief executive, Sean FitzPatrick. The bank, with its swish headquarters on St Stephen's Green in the heart of Georgian Dublin, was then the powerhouse of the booming Irish property market. "Seanie" was the darling of the financial community, helping investors turn dross into gold via the alchemy of Irish property.
How that has all changed! Now "Seanie" is in disgrace and could face fraud charges over his handling of the bank's affairs; the bank itself has become a cash-guzzling monster. Last week, Mr Lenihan announced a new bailout package for Anglo Irish, taking the total cost of resolving its problems to a staggering €34 billion (Dh171.37bn). Including the demands from other collapsed parts of the Irish financial system, Ireland faces a total bill of perhaps €50bn to draw a line under its disaster. That is one third of GDP. Next year, Ireland could face a public-sector deficit of €30bn and join the small number of states in which government borrowing exceeds GDP.
And there is worse to come. Ireland has won applause from the European authorities by committing itself to a radically austere financial strategy intended to reduce its budget deficit to 3 per cent of GDP by 2014. The first measures under that package, requiring painful cuts in public-sector areas such as health care, education and social services, were accepted relatively well by Irish society. If next year's budget is even more draconian, there is a greater chance of rising social unrest, as has been the case in the UK, Spain, Italy and other European countries. Irish trade unions can be as militant as any in Europe, if pushed to it.
And there is always the example of Greece. The poor Greeks have been forced to go cap in hand to European and other international financial institutions for a €110bn bailout that effectively puts the control of their economy in the hands of financiers in Brussels for the foreseeable future. That has been accompanied by some of the worst scenes of violent protest seen anywhere in the world this year.
So is Ireland the next Greece? Here, the picture gets a little brighter for the Irish. So far, Ireland has been able to manage its financial crisis from its own means and has not had to seek the international begging bowl. Irish long-term bonds are trading a full 400 basis points less than the Greek equivalent, indicating that global financiers are much more sanguine about Ireland's prospects. There are other glimmers of light, too. Before the property market took off in the 1990s, in what we can now see was a "bubble" of disastrous proportions, the mainstays of the Irish economy were its flexible, skilled and comparatively cheap labour force, coupled with the country's attractiveness as a low-tax destination for foreign investment.
The financial crisis has certainly made the workforce more flexible again, and better value than many European rivals. My friends in Dublin tell me the most significant indicator of this is the reappearance of the traditional Irish barman, rather than a Polish, Baltic or Australian import. The hope is that the stringent financial measures and the deflation of the domestic economy will make the country attractive once more to foreign investment. Ireland was for a number of years the most popular destination for US multinational corporations, and the hope is this can be achieved again, even extended.
Incidentally, the Irish are looking further than the US this time; there have been several trade missions to the UAE this year, and more are planned. The government believes the fast-growing high-tech sector will prove irresistible to UAE investors seeking opportunities in the post-crisis recovery. The long-term plan is for Ireland to become once more an export-led economy, and recent export figures suggest competitiveness is being restored in this respect.
And there is one final positive factor that is often overlooked but will be appreciated by global investors, especially in the Gulf: Ireland, contrary to the image of profligacy, and certainly in sharp contrast to its neighbours in the UK, has a sovereign wealth fund that was built up in the good years and which might now be drawn down to cushion the fall. The National Pensions Reserve Fund, set up in 2001, has about US$24 billion (Dh88.15bn) of assets. Small, maybe, by the standards of Abu Dhabi or Qatar, but perhaps a lifeline in these troubled times.