Danger of default or exit from eurozone if Europe does not help us, says economist
IRELAND will default unless helped by Europe, economist Jim Power warned yesterday.
"If Ireland does not get meaningful assistance from Europe, sovereign debt default and/or exiting the eurozone would become inevitable," Mr Power said at the publication of an economic report by Friends First.
"The problem is that after a decade of Irish government arrogance in Europe, Ireland does not have too many friends. Ireland needs to rebuild its relationship with Europe and the world as quickly as possible," he said.
Any default would not be an easy option, Mr Power added. People have forgotten the "utter blow-out in the Argentine economy" which had led to the "middle class scavenging in dust bins".
Argentine debt was less risky than Ireland's in the market for credit default swaps this week as economists boosted growth forecasts for the South American country and worried about today's stress test for the Irish banks.
The Irish economy is still struggling to emerge from the deepest recession in the country's history; the public finances are in an unsustainable position; debt is creating massive difficulties for the personal sector; the banking sector is still in deep crisis and the country's international reputation has been very badly damaged.
While there are signs of life in the real economy, the problems in the banking sector have created "a massive and probably insurmountable problem" for the Irish economy, Mr Power added at the publication of the Friends First Quarterly Economic Outlook.
The report predicts gross national product will shrink 0.3pc this year -- the fourth straight year of contraction.
A separate report by NCB economist Brian Devine yesterday was even more downbeat, predicting GNP would shrink 1.4pc this year -- or twice as much as the stockbroker had previously forecast.
Almost no independent economists share the government's view that the economy is set to expand rapidly over the next three years. Both NCB and Friends First see unemployment staying around the present levels of 14.7pc.
Mr Devine said "there is no doubt about the overall picture: an economy that cannot create jobs. The unemployment rate will stay above 14pc in 2011 and with this new revised base we do not see it dipping below 10pc before 2015."
Friends First's Mr Power said that it was vital to get people working in private sector jobs.
"The success or failure of this Government should be assessed two years into its lifetime at the earliest, and mainly by reference to the number of people engaged in real and sustainable employment in the economy at that stage," Mr Power said.
He said recent declines in prices had not gone far enough and inflation needs to be below EU averages for another five years to bring prices into line with the rest of Europe.
Consumer prices increased by 38.3pc between January 2000 and December 2008, but only fell by around 5.5pc in the following two years.
"This downward adjustment in the cost of living was not as significant as might have been hoped for or indeed required, and unfortunately, the downward trend in prices has now ended," he said.
Prices are rising again as mortgage costs and energy costs increase.
Consumer confidence continues to be hammered by bad news such as the suspension of trading in IL&P shares and the stress tests due to be published today, as well as the "massive destruction of personal wealth" seen in recent years.
Among several cost-cutting measures, Mr Power called for the abolition of most of the country's 38 local authorities, which he said would cut the cost of local government from €6bn to €4bn.