Business Irish

Tuesday 2 September 2014

Ireland scores high on fiscal reforms

Thomas Molloy

Published 27/11/2012 | 05:00

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IRELAND has performed well when it comes to fiscal reform in Europe, according to a new study.

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Ireland is the second best country when it comes to reforming the economy in the wake of Europe's financial collapse, according to the annual report prepared by the Brussels-based Lisbon Council think-tank and Berenberg bank.

Greece was the best and Portugal, Spain and Italy followed.

These reforms are helping to balance the eurozone and turn it into a more dynamic economy, the report says. The reforms, while painful, have driven labour costs down and helped to bring about an "internal devaluation" that has sharpened competitiveness, it adds.

"Almost all countries in need of adjustment ... are slashing their underlying fiscal deficits and improving their external competitiveness at an impressive speed," the report says.

It concludes that Ireland had the fifth sharpest fiscal adjustment between 2009 and 2011 after Greece, Portugal, Spain and Slovakia.

"Under the pressure of crisis, the countries that need to shape up fast are doing so. The results reveal no trace of a 'moral hazard', that is, of a hypothetical risk that outside support could blunt the readiness to adjust."

The report points out that external imbalances, which were one of the reasons for the debt crisis, are diminishing.

Real unit labour costs are falling sharply in Greece, Ireland, Portugal and Spain. On the other hand, wage moderation, long seen as holding up internal German demand, has ended – suggesting that the private sector in the eurozone's southern half was moving to catch up with Germany in terms of competitiveness.

Crisis

"More than anything else, this shows that serious structural adjustments can happen – and are happening – within the confines of the monetary union," the report says.

That means there is no need for any country to leave the euro to restore competitiveness, it adds.

It says that while the euro and its governance structure still need to be improved further, they are already providing an important framework in which countries can successfully reform themselves.

"If the eurozone gets through the current acute crisis and stays on the reform path, it could eventually emerge from the crisis as the most dynamic of the major Western economies."

The report came as a separate report published by InterTradeIreland yesterday showed that most companies north and south of the border believe that the protracted economic downturn is showing no signs of improvement.

InterTradeIreland's quarterly survey of 1,500 businesses earlier this month shows that just over half of businesses in the Republic are winding down, surviving or contracting, compared with 44pc in the North.

Sales activity also remains negative, with 43pc of businesses seeing a decline in sales.

Almost one-quarter of businesses did not show a profit in the previous 12 months, with 60pc of businesses in the Republic indicating they had been severely impacted by the economic downturn that began in 2008.

Irish Independent

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