Financial Situation in Ireland Research Paper

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Ireland one of the members of the European Union (EU) has been facing financial constraints in the last few years. One of the countries that were nicknamed the Celtic tiger after having a fast and steady economic growth than the western tigers is at the brink of falling. The country has already applied for a €90bn that is needed to help revive the banks. The country also aims to reduce the rate of international borrowing costs. The reason why the debts are so high is that most the banks are nationalized making the debt governments. The burden to revive the economy is too high for Ireland. For instance, the country requires €45bn to clear the bank’s debts that occurred after the property market collapsed. However, the IMF and the EU have confirmed their assistance to Ireland. This will sustain the economy as well as safeguard the financial stability of the European countries. Nonetheless, the IMF and the EU have imposed conditions that have to be followed. The proposition of the paper is that the conditions being imposed on Ireland by the EU and the IMF are impossible and instead these two bodies should provide a substantial discount on debts. This would avoid debt default as well as prevent the Irelands exit that could have a negative impact on the Eurozone currency.

One of the conditions imposed by the EU and the IMF is that Ireland should cut its spending by at least €15bn in its budget for the next 4 years (EU center in Singapore 2010). Given the rate of unemployment in Ireland, this is impossible to achieve. The rate of unemployment stands at 5.9% in the long-term with the official unemployment rate standing at 13.8% (Finfacts Team 2010). To create jobs the government has to spend. It can be argued that instead of rescuing the economy this imposition is likely to make it even worse. The aim of cutting costs acts as an internal devaluation that would raise Ireland’s internal competitiveness (EU center in Singapore 2010). This will force Ireland to raise the corporate tax rates in a bid to raise revenues. This means that the taxpayers will have to finance the tax, an impossible task to achieve given the high rate of unemployment. Both the EU and IMF require Ireland to increase its corporate tax as a condition to show commitment. However, the officials of Ireland have insisted that the corporate tax rate should remain low. According to the two organizations, corporate tax rates increase forces borrowing from the host country (113). This increased borrowing erodes the corporate tax base because of the pressure on the tax base. Instead of reducing the corporate tax base, high corporate taxes put foreign investors away. This reduces the number of investors and the rate of investment goes down. Investments form part of a government‘s income, so increased spending with less investment affects the GDP and the economic growth rate. Since 1956 low corporate tax has been the cornerstone of Ireland’s economy (Nhill and Slattery 2011).

The austerity plan designed by the Ireland government under the conditions of the EU and the IMF is to have job cuts in the public job sector. According to Reuters (2010), the government unveiled its plan that would reduce its public jobs through job cuts in thousands. This will be aimed at reducing the number of payments paid to workers. Although this would reduce government spending it would lead to adverse effects. The employment rate standing at 13.8% (Finfacts Team 2010), reductions of jobs instead of creating new jobs would cripple the economy. Unemployment leads to a high cost of living as well as forces the government to spend more on the unemployed. The economic growth is based on assumptions that have received a lot of skepticism from economists (Halpin and Crimmins 2010). The plan also suggests an increase in the VAT of Ireland. This would affect the general public and reduce their purchasing power. Based on the economic background of collapsed banks and other institutions the likelihood of Ireland regaining its economy in the next two years is absurd. Instead of putting these stringent conditions on Ireland, the EU and the IMF should reduce its debts as a way that could prevent the fall of the Euro.

According to an IMF report (2010), the banking sector is not sustainable anymore. The objective of the IMF is to help the banking sector and see the implementation of fiscal policies that can revive the economy. The huge difference between the unrepaired economic deficit and the fall of the banking sector to its knees are likely to hinder the growth required by the IMF. The GNP of Ireland is below the GDP by 18% (Finfacts team 2010), there is the likelihood that the country will remain in recession. Also, the country operates under unsustainable expenditure, for example, according to Nhill and Slattery (2010) the welfare, education, and health are too high. The country is operating under a low GDP that needs boosting.

In conclusion, Ireland’s economic crisis calls for debt relief. The conditions imposed by the European Union and the IMF are impossible to fulfill. For instance, reducing spending by at least 15 billion Euros and increasing the corporate tax rate would affect the economy negatively. With an unemployment rate of 13.8% reducing the number of public jobs would increase the unemployment rate. Ireland cannot take itself out of the debt and the economic failure under the above-discussed conditions. In essence, the conditions are hard to satisfy in fact the chances of making the economy unstable it is high. The only solution is to cut its debts before they can affect the value of the Euro. This would affect the entire Eurozone.

References

Clark, William. Corporate Tax Incentives for Foreign Direct Investment. Paris, 2001. Print.

EU center in Singapore. The EU and IMF to help Ireland. 2010. Web.

Finfacts Teams. News: Irish Economy. 2010. Web.

Finfacts Team. Irish Economy: No exit from recession in Q1 2010 as GNP fell in the quarter while GDP rose 2.7%; Current account deficit was €1.62bn. 2010. Web.

Halpin, Padraic & Crimmins, Carmel. Ireland’s austerity plan draws skepticism. Reuters. 2010. Web.

IMF Approves €22.5 Billion Loan For Ireland. IMF survey Magazine. 2010. Web.

IMF approves new disbursement to Ireland by 1.580 billion Euros. Reuters. 2011. Web.

Nihill, Cian & Slattery, laura. Fine Gael under fire: Ivan Yates says default is inevitable. Irish Times. 2011. Web.

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IvyPanda. 2022. "Financial Situation in Ireland." March 31, 2022. https://ivypanda.com/essays/financial-situation-in-ireland/.

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