Wednesday 17 January 2018

Resilient Ireland plays cards right to ensure happy ending

The highly respected Financial Times yesterday hailed many positive economic indicators emerging in Ireland's favour, explaining how hard-earned progress to date could be a trump card in transforming our fortunes, and those of the Eurozone

David Vines and Max Watson

Markets and rating agencies, not to mention academics, often make egregious errors in judging country risk. All too often this is by failing to notice a change in macroeconomic fundamentals that really does matter. As the crisis moves through its nadir, one major error is almost certainly the market assessment of Ireland's public debt.

As a group, the troubled periphery economies have faced three challenges: achieving a leap in competitiveness that will restore growth; convincing markets that public debt is on a sustainable track; and normalising the access of banking systems to market funding. These three challenges have become inextricably linked. In Greece, deep-rooted fiscal problems have infected the financial system. In Ireland a banking debacle has swollen public debt. And without strong competitiveness to relaunch growth, this aggregate debt dynamics story can have no happy ending at all.

So the first and most important thing about Ireland is that it is swiftly restoring its competitive edge. Indeed it is moving rapidly towards a sizeable current account surplus -- in a range of 3pc to 4pc of gross domestic product. Of course, recession has also played a role in turning external accounts around, but a steady uptrend in exports has been under way for some time.

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