ESRI - 2013 out to 2020 … ml?id=3770

Medium-Term Review: 2013-2020

They run 3 Scenarios:
1) Recovery
2) Delayed Adjustment
3) Stagnation

With a Recovery scenario based on the EU economy recovering and domestic issues both resolving. Under this scenario the unemployment rate could be 6% by 2020.

The Delayed Adjustment model is based on EU recovery but with Ireland failing to resolve the issues in the domestic economy thus requiring budget cutbacks over a longer period. Unemployment in this scenario would be “in double digits” for most of the decade.

Stagnation: Basically if the EU does not return to growth in the near future then we are looking at the same unemployment rate in 2020 that we have today.

Realistically scenario #2 is highly likely and the country has been shaping up for this politically for quite some time.

Unfortunately, I think scenario 3 is quite likely. I don’t really see positive signs of movement in Europe. Austerity governments have, in the main, made the same mistakes that Ireland made in the 1980s - raise taxes, cut capital spending, treat stopping planned spending as cuts, cut entitlements of the currently working (means testing, future pension reductions - create welfare traps), wait it out.

Not meaning to be facetious, but could we have a #4? Which would be something like: Europe stays bad, and Ireland gets even worse.

Honestly, that would be my prediction. I don’t believe we have suffered the requisite drop in our standard of living yet to match the (future/present) wealth we’ve destroyed.

4) Zombie Apocalypse

This is the most likely scenario. We know how correct the ERSI 5 years prediction was in 2008.

The next most likely scenario is #5 is that Europe gets a lot worse - and the free money for Ireland disappears. The structural issues of the Euro have not been dealt with and the political situation is utterly toxic. This an unusually quiet period with everything on hold until after the German elections. Hollande is hoping that the SPD’s wins and Steinbrück will be more amenable than Merkel but he will soon discover that Steinbrück is little different from Merkel. And then the fur will fly.

The Berlin / Paris axis is completely dead and that was the only thing that kept the euro politically viable till now. The last few months both the Bundesbank and the Bercy Fortress have been taking public potshots at each other, limbering up for a real fight. In wars like this I’d put my money on the French finance ministry coming out on top. Which will mean a real change in the configuration of the euro. Long term this would be very good for Ireland (and the rest), short term it will be a “credit event” with really severe pain.

Either way the flow of free money to Ireland (almost 10% of GNP p.a) will end sooner or later and then the real austerity will start. Its still 1979 five years after the collapse. Pure groundhog day. The problems remain the same. As do the solutions. But no meaningful steps have been yet to be taken to start filling in the hole. You’ll know when it starts because that is when people will start spilling on to the streets. Demanding that their free money goodies continue. When you strip away the MNC charade Ireland is basically Portugal, but a Portugal that thinks it can afford both a Norwegian standard of living as well as a Norwegian cost of living. Pure cargo cult thinking. All cargo cults like this eventually collapse.

The ERIS report is pure wishful things. Based on the last time around when it took 8 years for the country to face up to a far more trivial situation I’d expect it to be sometime in the 2020’s before the serious structural changes are made that are needed to build a real recovery. Assuming the country has the luxury of not having an external catastrophic event forcing the situation.

Ireland remains just one major international crisis away from living on fumes within a few months. The current kitty that the DoF squirreled away last year will be all used up in 12 to 18 months. Assuming that another Anglo or AIB “situation” has not blown it all first.

aw man thats a bad outlook which could easily come out on top

Less amenable if anything, unless he’s playing a “if you think she’s the bad cop how do you like my truncheon” routine for public show.

I have that feeling too. The SPD’s have been dropping very broad hints to the French that Hollandes fantasy that “we’re all Socialist here, on the same side” is just fantasy. Merkel may be channeling the Inner Hausfrau of German politics but the SPD’s will be little different. German financial self righteousness runs the whole spectrum from Black, Red and Yellow to even the Greens and Blues. The fact that most of the German banking system is still just one big Dexia is neither here nor there in the bigger scheme of things.

As Hollandes policies are proving to be as big a train wreck as Mitterands first term I expect things will really hot up in the Franco-German fiscal war soon after the election. The best outcome for Ireland is not so much for the French to win but for the Germans to lose.