Ireland’s debt situation is set to get much worse, even though they’ve been aggressive in restructuring their banking sector.
Irish economist Morgan Kelly doesn’t think Ireland’s new fiscal policies are going to get them anywhere, except to a 2012 debt to GDP ratio of 115%. That’s just as bad as Greece.
The problem lies not in Ireland’s fiscal restraint, but in absorbing the banking system’s losses on mortgages and other debt instruments.
Ireland has chosen to set up an agency to acquire the bad debt of the country’s banks. Due to the declining strength of the Irish economy, those loans are never likely to return to full or even half-value.
Exacerbating that is a banking system that relies too much on international lending, which is likely to dry up as belief in the Irish economy decreases.
The country is therefore taking on losses from the banking sector, without gaining any benefits. Adding that to the loss in tax-receipts from an economy in recession and Ireland is likely to need EU assistance in the short term, rather than long, according to Kelly.
So much for the Celtic Tiger.
The Celtic Tiger was the phrase most associated with Ireland since the 1990s, describing its dramatic growth from one of Europe's poorest states to one of its richest.
The boom was based upon some solid fundamentals, but also a property and credit boom similar to the U.S.
Ireland's property boom was at the heart of the Celtic Tiger phenomenon, and when it bust it brought much of the previous decade's economic growth with it, including several of the country's biggest banks.
The Irish government was forced to acquire Anglo Irish Bank rather than provide a $1.97 billion cash injection as it was believed it would not have been enough to save the troubled bank. The government continues to hold onto ownership of the nationalized firm.
Ireland is to set up NAMA, the National Asset Managing Agency, with the goal of buying up much of the distressed assets on Irish bank books. Full details have yet to emerge, but the government, under Taoiseach Brian Cowen, is set to do so March 26.