Dr Doom: it's not all bad but we have big problems
Academic predicts eurozone will survive but Ireland has work to do
Prof Morgan Kelly has said he believes the crisis in the eurozone will be resolved and that Ireland will return to the international markets off the back of massive long-term and low-interest loans from the ECB.
However, the UCD academic, whose previous apocalyptic predictions have struck fear into the hearts of those in government, earning him the nickname "Dr Doom", tempered that optimism with the observation that Ireland would still have "very big problems" to deal with and from which the banking crisis has diverted attention.
Delivering the annual Hubert Butler address to a packed St Canice's Cathedral at the Kilkenny Arts Festival last night, Prof Kelly said: "The eurozone is too complex to collapse, the logistics of undoing the eurozone especially for us.
"We've got €160bn in European deposits in our banks, what happens to those if the eurozone disappears? It's a nightmare. But I think mostly what will keep it going is that it is in Germany's benefit."
Commenting on the future prospects for Ireland in the event of such a resolution to the eurozone crisis, he said: "I think at some stage what we are going to see are very large ECB loans to Ireland and Greece, and bigger ones to Spain and Italy.
"But assume that we get through the European crisis and suppose they lend us €100bn for 50 years at one per cent interest. That would be the end of the problem for us, and we would be able to go and borrow again from the international markets.
"Even if we get through that, we still have very big problems in Ireland.
"The whole banking and government crises have taken attention away from very deep and pretty much intractable problems of the Irish economy."
Identifying those problems, Prof Kelly spoke of the massive level of mortgage indebtedness of tens of thousands of people, mortgages that he believes these people will simply be unable to repay; rising unemployment; the increasing number of insolvencies among Irish indigenous companies; and the ongoing decline of international economies, most notably the US.
For Ireland, Prof Kelly said, a recession in the American economy would be particularly damaging.
"If the US goes under, that hits us very, very badly," he said.
Identifying what he sees as the solution for the Irish economy into the future, Prof Kelly said it was essential that Ireland endeavoured to improve the education system.
Commenting on this, he said: "We have dumbed down our education system.
"Unfortunately, the rest of the world hasn't.
"We've given up, the rest of he world hasn't."
Returning to the difficulties the Irish economy is now facing as a consequence of the collapse of the Irish banks, Prof Kelly restated the criticisms he had made of Central Bank Governor Patrick Honohan last May.
He said that contrary to Mr Honohan's view on the matter, it should have been possible to overturn the €440bn guarantee the Government had given to the banks in September 2008.
Prof Kelly said the blanket guarantee, entered into on that night, must have been entered into through a "combination of desperation and bravado".
Commenting on government estimates that Ireland's national debt would reach a peak of €200bn in 2015, the UCD economist said he put the estimate far higher, and placed the figure between an astronomical €240bn and €250bn.
Accounting for the difference between his and official estimates, Prof Kelly said that he had factored in at least €11bn of mortgages, given to 10,000 professionals, to purchase properties whose prices ranged from €1m to €2m.
He said these mortgages would not now be repaid as most of those same professionals could no longer afford "to buy you a cup of coffee".
Prof Kelly said he did not think that property prices had reached the bottom yet.
Explaining this, he claimed that banks were still providing mortgages to well-paid people in the public service.
The effect of this was to keep property prices artificially inflated, he said.