To explore further the implications of the Irish bailout, euronews spoke to Brian Lucey, a professor of finance in the School of Business at Trinity College Dublin. He is also a former Central Bank economist.
Euronews reporter Seamus Kearney: “What do we make of this apparent u-turn by Dublin? One minute denials of a rescue being sought, and then this massive request?”
Brian Lucey: “Well, I think the only people who might have been surprised by it were the government, and in particular some of the government ministers who had been sent out to bat, to say there was no actual bailout being requested. The dogs in the street knew that the IMF were in town; they knew that there were discussions ongoing; they knew that these technical discussions, as the government was saying, were almost certainly likely to result in some request or form of assistance. So the government made complete fools of themselves, to be honest, not by denying it, but by denying it in the manner that they did, and the vociferous nature (of that). And they further eroded what residual credibility they had left.”
Seamus Kearney: So where to now for the Irish economy? Can it recover enough to wake up the once mighty Celtic Tiger?
Brian Lucey: “Well the Celtic Tiger really was a result – in the 1990s and early parts of the last decade – of an export orientated world competitiveness economy. We moved from that into a credit boom, which was a false situation. We masked the problems. The private sector in particular has been doing quite well. Our exports have held up almost miraculously well, and there’s evidence that industrial output is growing. So the underlying shoots of the Irish economy are doing very well. The key thing now is that we sort out the banks, so that companies in the upswing can actually gain access to credit. At the moment the banks are absolutely on their uppers and can’t provide credit, even if the companies that are looking for them have good projects.”
Seamus Kearney: “Just taking the wider view, we’re talking about the eurozone as well, the contagion effect. What’s the lesson learnt from Ireland and is this going to stop that so-called contagion?
Brian Lucey: “I think the lesson to be learned is that governments need to take action early. They need to take action very very harshly, if necessary, with protected national interests. In some countries that’s about restrictive practices and coddled industries that are retarding growth. In the Irish context it was about the banks. So governments need to do that. If governments can’t do that then we need to find a mechanism – if we’re going to have this euro experiment continue -whereby that degree of fiscal oversight, that degree of economic oversight has to be at the centre, if it can’t be at the local level. As to whether it will stop it (contagion), that’s unclear. The Financial Times … today has a section saying ‘… and now Portugal.’ So international bond markets are pretty ruthless beasts and I think we will see strain coming on Portugal. The fact that the EU and the IMF have come in hard, come in heavy, with regards to both Greece and Ireland, indicates I think that they are willing to take the fight. But ultimately you can’t stand against market forces forever. So Ireland, Portugal, Greece, Spain, etc, have to get their various houses in order. Otherwise this will continue to bleed out.”