Ireland seeks direction in a sea of economic turmoil
Dublin — Nothing could be lovelier or more serene than St. Stephen's Green in central Dublin early in the morning. Behind tall black railings ancient trees sweep down to immaculate, deep-green grass and dark mirrors of water. All is still.
Yet behind that facade, and behind headlines about Northern Ireland and the unclear aftermath of the latest general election here in the south, this small and divided island on the edge of Europe faces economic turmoil and crisis.
Economists are alarmed at a combination of soaring inflation (21 percent a year, due to fall slightly by year's end); high unemployment (well over 10 percent, though exact figures are not kept); a big budget deficit (400 percent more than forecast); and a balance-of-payments deficit that could double this year to 1.3 billion Irish punts ($1.9 billion).
On top of that is now a period of political uncertainty. No party has a majority in the Dail (parliament). Two seats are held by inmates of the Maze prison in Belfast, at least one of whom could die on hunger strike, forcing a controversial by-election and changing the balance of power in the Dail yet again.
Whoever becomes prime minister June 30 faces urgent action to reduce government borrowing abroad. Joe Durkan, senior research officer at the Economic and Social Research Institute, sees interest payments jumping by 120 million Irish punts ($174 million) a year for the next few years.
Yet the Irish economy is growing at only between 1 and 2 percent a year.
There are some bright spots, analysts say.
Ireland has attracted a significant amount of light industry from the United States and elsewhere. More than half its exports are now manufactured goods, in a country so rural for so long.
Construction and industry have grown rapidly and now employ 50 percent more workers than agriculture, fishing, and forestry.
Yet a growing number of economists, including the Organization for Economic Cooperation and Development (OECD) in Paris, see a crisis at hand.
"The economy has fallen on evil days," comments the respected Financial Times newspaper in London in an editorial. "The gravity of the symptoms is beyond dispute. The external deficit is in danger of going out of control: The OECD forecasts that it will reach 13 percent of gross domestic product this year."
When Ireland joined the European Community in 1973 its prospects looked good. It has ample supplies of teachable, well-educated workers, a currency linked with sterling, and the Community to provide funds for farmers. In March 1979, it cut the punt adrift from sterling and joined the European Monetary System (EMS).
Since then oil prices and inflation have risen. World recession has contracted demand. Farmers who borrowed to expand find debt repayments steep.
When Prime Minister Charles J. Haughey came to office, he said the country would have to tighten its belt, but since then he has been criticized for reversing course and borrowing heavily abroad.
Sources here say he is only now able to borrow in foreign currencies such as the German mark and Japanese yen. Foreign banks still see Ireland as a good risk, but seem to have less than full faith in the punt, which has lost 14 percent against sterling in two years.
The budget deficit for this year was first estimated at 515 million punts ($ 746 million). But it jumped to 202 million punts ($292 million) in the first three months alone. Recent subsidies promised by both parties in the election campaign could push it to 800 million punts ($1.16 billion).
Paddy Geary, economics lecturer at University College, Dublin, wrote recently that the budget deficit would rise 200 million punts next year because of debt repayments alone.
He worried that Ireland had borrowed from banks also lending to Poland: "We are risking a potentially volatile world financial market," he said.
Mr. Haughey has spoken lately of the need to borrow and spend to keep employment high in a country where half the population is under 25.
His main rivals, Garret Fitzgerald and the Fine Gael party, have promised to attack inflation even if unemployment has to rise somewhat. But he can govern only with the small Labour Party, which wants more government spending, not less.
Meanwhile economists predict a further devaluation in the punt before long.