Stuck in Dublin
I was stuck in Dublin over the weekend due to the snow snarl of air traffic across the northern EU and EZ. This was an interesting contrast to recent visits and holidays to other EZ crisis hit countries, notably Greece, and points to some differentiation for exit strategies and recovery prospects for after the debt crisis is resolved. Ireland is a place where the reduction in demand is showing up in various ways that should assist external adjustment in contrast to some other more structurally troubled cases:
Hotels have dropped prices sharply. The none too fancy but passable hotel where British Airways put us all up had a New Year’s Eve celebration including accommodations, champagne dinner, and full Irish breakfast for EUR59 – the price of 2-3 cocktails in the trendy bars of Athens.
An Irish coffee will set you back a couple of euros or a couple of quid, whereas a nice Greek coffee is easily a fiver in a hip café and a latte can set you back EUR8.50. While the weather in Greece is better, the poetry and prose in Ireland is of a more modern vintage whether stream of consciousness or Waiting for Godot is your cup of cha.
Hotel and airline staff is incredibly helpful and flexible. They know what’s going on. There is a large migrant worker community from Eastern Europe—especially Poland, as in the UK and some other countries in the northern EZ. To be fair, there is some Balkan migration into Greece, but this hasn’t helped keep prices of non-tradables including tourist services down by any means.
Aer Lingus is a model of efficiency and service. You can book and pay online even at the airport, and print a boarding pass immediately – no waiting in the cues driven by the weather. Contrast this with Olympic Airways, Greece’s flag airline – whose mismanagement is epic, and whose issues are legendary despite no real likelihood of snow…
Ryanair, a low-cost Irish airline is a tough beast, but even if not cheerful, it’s cheap (unless you have baggage, in which case you do get to pay up through the nose). But it’s a brand that sells throughout the EU/EZ.
Ireland has them in spades, not just Ryanair, but there’s Guinness, Jameson and various other whiskies etc.
The Bottom Line:
Ireland is in deep trouble. The scuttlebutt, consistent with the news and RGE’s analysis, is that Fine Gael (FG)is in the lead, but Sinn Fein is making big strides. While FG is more moderate on the EU/EZ rescue position, Sinn Fein is becoming increasingly strident and turning up the heat on FG, and may command enough votes/seats to shift the position of the FG further away from the deal Ireland has just struck with the EZ/IMF. Bondholders beware…
And further out, of course, it’s unlikely that these chaps in a future coalition will be less “nationalistic” on sovereignty issues like the 12.5% corporate tax rate, which is a key plank of Ireland’s competitiveness and attraction to heavyweight corporates and has accounted for its strong exports in the past.
The trouble is of course that keeping the tax rate low—essential for growth, exports and employment in the past, present and future of the Celtic Tiger—is likely to remain a thorn in the EZ side. Raising the tax rate may raise some revenue in the short run, but will undermine competitiveness – it would really level the playing field with the EZ’s other higher tax jurisdictions.
So the likely corner solution is that taxes remain low and bondholders are increasingly likely to take a hit, but the increase in the public debt has to be scaled over a far smaller GNP than GDP (thanks to the factor payments that are repatriated by corporate chieftains of Ireland’s large stock of FDI).
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Having just arrived home in a very snowy Ireland I might be able to add a few other observations to this interesting discussion.Prices have most certainly come down a good deal. In terms of consumerism, I was in what appeared to be a very busy Dublin restaurant yesterday for a Sunday night! Anecdotally I heard from a reliable source that the IMF/EU Dublin based team were quite surprised to be unable to get a restaurant booking on Saturday night!Opinion polls are quite volatile at the moment, but all point to a strong rise in support for Sinn Fein, with it increasingly possible they could conceivably overtake Fianna Fail, becoming the 3rd largest parliamentary party after Labour and Fine Gael, following the March (?) elections. A Fine Gael/Labour coalition is still by far and away the most likely future government. But a Sinn Fein led opposition would change the political dynamic, which, as Arnab points out, could have repercussions for bond holders. Leading up to elections, Labour will be wary of Sinn Fein out flanking them on the left. The 1918 and 1932 general elections fundamentally changed the future of Ireland’s political landscape. There is now a chance that 2011 could do the same.Just some thoughts from Ireland.