Monday, 5 November 2007

The Irish show us the way.....

In many respects, the current economic troubles in Ireland offer a stark vision of where the UK economy is going. Across the Irish sea, things are about one year ahead of where we are. Their bloated housing market is collapsing, and there is nothing that can save it. The Irish don't even have an incompetent central bank to call upon to reduce interest rates. The Irish are a the mercy of some jokers in Frankfurt. I can't imagine that the ECB will cut interest rates in order to give irish property speculators a free pass.

Here is an article from an Irish paper. Within about twelve months, our papers here will be writing similar things.

A sudden snapshot of reality

By David McWilliams

In a single week, the government has been faced with crises in many areas of Irish life.

The news last week from the Central Bank, Waterford Crystal and the World Economic Forum captured an economy in transition.

In just seven days, we got a snapshot of the housing market, the state of Irish manufacturing, the immigrant surge, the pre-eminence of the multinationals and the appalling job the state is doing with its infrastructure.

Let’s deal with each set of data in turn. The Central Bank revealed that mortgage lending was 30 per cent down last month vis-a' -vis the same month last year. This is unambiguously positive.

It is not patriotic to talk up the housing market; the best thing that has happened to the economy this year is that the financial nihilism of rising house prices has come to an end at a pace that many thought impossible. This is not a crisis, but a boon.

The pinnacle of our economic development cannot be to condemn a generation of workers to paying 15 times their annual salary for a shoebox in the commuter belt. This is a sign of economic failure, not economic success, and the sooner it unravels the better.

Now that the mystique of rising prices has been punctured, prices will go the way of mortgage borrowing - downwards. People, seeing that house prices are falling, will just stand back and allow the market to do its thing. This is what the economy needs.

In the recent past, there has been such a cacophony regarding the housing market. Those who believe that it was all a bubble have been, bizarrely, branded as unpatriotic.

What nonsense! The main problem with the debate is that the discussion on the Irish economy has been hijacked by the housing lobby and its agents. So the economic debate is jaundiced.

The central myth propagated by the housing lobby is that the housing market and the economy are one and the same thing. They are not, and for the economy to breathe, the stranglehold of the housing mania needs to be loosened.

To see why this is the case, just look at the second major piece of news this week. In Waterford, one of Ireland’s best known brands -Waterford Crystal - is laying off close to half its workforce. The reason is that Ireland is far too expensive, and one of the reasons for this is the cost of housing, which workers need to put into their considerations when they are looking for higher wages.

This means that Ireland is pricing itself out of the market when compared to other parts of the world that have not allowed the housing market to get out of control. It is now likely that Waterford will follow many other European manufacturing companies. It will split the world into three: the production will be done in Asia, the branding and heritage aspects of the product will be bolstered in Europe, and the selling will be done in America.

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