Euro and inflation long-term threats to Irish recovery
Published 17/06/2010 | 15:59
Ireland is facing a series of imminent threats which will have grave long term implications for the economic well being of the country, according to one of Ireland's most successful entrepreneurs.
Addressing the Experian Ireland Annual Business Luncheon, John Teeling, founder and Chairman of Cooley Distillery, outlined how a combination of key issues, including the instability of the euro and the inevitable rise in inflation means the country is facing a very difficult outlook for a number of years to come.
Speaking in relation to the viability of the euro currency, Mr Teeling outlined how the gap between the economies of Portugal, Italy, Greece and Spain (PIGS) and Germany is simply too large for the euro to survive.
"Hardworking German taxpayers are not going to fund their Greek counterparts to retire at 53 on an 83pc pension. Monetary union, without fiscal and political union cannot survive, so the euro in its current form must break" he said.
Mr Teeling believes that one of three things will happen over the next five years;
- the currency will struggle on as more and more euros are printed and sold to international pension funds;
- a two tier system will emerge with the PIGS devaluing against the Deutschmark group; or
- a flexible euro might evolve where internal exchange rates can vary against a base level.
"It is important to remember that none of these outcomes are positive in terms of the Irish economic outlook" he cautioned.
The prospect of steeply rising inflation is not a case of if, but rather when, according to Teeling.
"States are currently printing money to avoid economic collapse. Spare capacity means there is little pressure out there at the moment but as demand increases and capacity is taken out, pricing power will return.
“In Ireland we import most of our productive inputs, so we are very prone to external inflation and our long term inability to deal with union demands means we also face steep labour cost inflation" he advised, citing the negative consequences this would yield for Ireland's wealth creating export orientated manufacturing sector.
The dire state of the Government finances means that raising taxes and decreasing public expenditure will be a recurring theme in the national budget for many years.
"At present the Government simply cannot pay its way. With an income of €40bn and expenditure of €64bn it is clear that the budget cannot be balanced any time soon.
“The solution is clear, rising taxes and tightly constrained state expenditure for years to come. In context this inevitably means that public sector employees and social welfare recipients will have to adjust to a decline in their living standards" he said.
Speaking about the crippling debt that is affecting so many individuals and small businesses around the country, Mr Teeling advised that lenders will have to suffer some pain in respect of the level of indebtedness that exists.
"There are up to 200,000 people living in houses that are in negative equity, and in addition many of them are suffering exhausting commutes, declining wages and little prospects in their employment.
“There are countless small business owners, with debts of less than €10m that are not going to be rescued by NAMA. We have to introduce packages to address negative equity and the levels of indebtedness that exist or there will be massive incidences of foreclosures and repossessions" he warned.
The Experian Ireland Annual Business Luncheon took place in the Four Seasons Hotel, Dublin 4 and was attended by more than 300 delegates from the finance, banking, insurance, travel, retail and services sectors.