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Ireland in Crisis

Patrick Honohan Philip Lane @ vox
28 February 2009

Ireland’s huge exports to GDP ratio and privileged position in global supply chains helped it grow rapidly in the 1990s, but are now amplifying its downturn. This column argues that Ireland’s looming banking and public finance crises can be fixed. The government must find new sources of tax revenue and craft a package in which all social partners can claim ownership.

The increase in secondary-market spreads on Irish government debt in the past five months is symptomatic of the sudden emergence of a twin crisis in the banking sector and in the public finances.

Ireland’s exposure: Blessing in the 1990s, curse in the global crisis

It was always to be expected that Ireland would be particularly exposure to a global downturn, considering the exceptionally large contribution of exports to GDP and the vertical integration of much of Ireland’s manufacturing sector into the global production chains of major multinational firms. These characteristics contributed to a sustained output boom during the 1990s but now act to amplify the downturn. Moreover, the Irish export sector must cope with a trend loss in wage competitiveness since 2000 and the sharp slide in sterling over the last six months. Link to article

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