Monday, November 15, 2010

Irish stewed

I can't help feeling a little sorry for Ireland at the moment. Their economy is in dire straits and, although they can't really blame anyone but themselves for the situation, they don't have luxury of being able to prop it up the way the government here is doing.

Currently, the only things preventing Britain being in the same boat are the facts that we still retain our own currency and therefore have control over monetary and fiscal policy. Keeping the pound - which most of our political leaders wanted to dump, but were only dissuaded from doing so by the belief that it was one step too far for the British public at the time (and probably for good now) - has enabled us to keep the wolves from the door a little bit longer.

The other thing propping up our economy is the property market. Not the selling and buying of homes - no, the crucial thing is the value of property. You see, as long as the government can keep the value of property artificially high they can convince people to spend money - and that is what our economy relies on.

As long as the value of our homes remain considerably higher than the prices we paid for them then people will consider that a cushion for their spending. As most people of my generation bought their homes when they were relatively cheap it means they often have one or two hundred thousands of pounds of equity and this "cushion" is what enable people to continue to spend.

It's also one of the reasons why the government - this one as much as any of the previous governments - is so keen on letting immigrants flood into the country - it keeps the competition for housing fierce and the cost of homes artificially high. Of course, this is also short term and temporary. As soon as the current generation fades away the next generation are going to be left with a huge debt burden and unable to buy the homes their parents did - but my generation - which includes the politicians who run this country - is the most selfish generation this country has ever seen.

Ireland can't do this. Although they have also allowed immigrants to flood into their country as well, the trouble is that their population was tiny in comparison to Britain's - so the housing boom it created melted away as soon as the economy hit the skids. They just aren't overcrowded enough like good ole Blighty.

So with their monetary and fiscal policy dictated by some faceless bureaucrats a thousand miles away and their population too small to support the high property values ours does, the Irish are well and truly up the creek without a paddle.

As the Irish government try desperately to avoid having to accept an EU bailout there is one thing they could do that might avert this - junk the euro. But the EU don't want them to do that as they fear that as soon as one member state drops this fake, flawed currency then others will do the same - but ultimately this is what they will have to do. The longer they delay it the more it will cost them in the long term.

And it should serve as a cautionary tale to all those proponents of the euro. Take the opportunity to write to your MP - especially if they were one of the euro supporters - and remind them of this fact.

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