Full text of yesterday's 'Financial Times' editorial on Ireland's recovery
The Irish patient
Published 03/09/2011 | 05:00
Ireland's epic economic binge was so intoxicating that the ensuing hangover was certain to be a long, painful and humbling experience.
Yet there are encouraging signs that the worst is over. Other countries caught in the eurozone's sovereign debt and financial sector turmoil could learn from the way that Ireland is nursing itself back to health.
To be sure, challenges remain. Unemployment is at its highest level since records began in 1967. Financial distress among home-owners is so acute that more than one in 10 mortgages are either in arrears or have been restructured.
Domestic demand is too weak to propel economic growth, and Ireland's prospects for an export-led recovery will be damped by a darkening global outlook. Lastly, Ireland's banks still rely on large cash infusions from the European Central Bank.
Nevertheless, Michael Noonan, finance minister, was justified in telling parliament on Thursday that Ireland had made "considerable progress" in extracting itself from the emergency that forced it last year to negotiate an €85bn international support package.
Wage cuts and price deflation have restored Irish competitiveness. In contrast to Greece and Portugal, its fellow occupants of the eurozone's intensive care unit, Ireland's current account deficit is moving into a surplus.
The rebound is explained partly by the multinational companies, chiefly US-owned, that use Ireland as a European base. But Irish policymakers have played their part, too.
By honouring its promise to the European Union and International Monetary Fund to cut its budget deficit, Ireland is regaining the confidence of global investors.
The Fine Gael-led coalition government earned credibility after it took power in March by swiftly cleaning up and consolidating Ireland's banking sector. Outside assistance has helped: eurozone leaders acted wisely in July when they eased the terms of Ireland's rescue loans.
All this explains why, despite severe debt market turbulence in July and August, Irish 10-year government bond yields have fallen to less than 9 per cent from over 14 per cent.
The patient is not yet fully on his feet. But Ireland is showing that, under the right conditions, recovery is possible. (Courtesy of The Financial Times)