Ireland's Debt Problem

An economic policy based on rising debt and low corporate tax rates is not and never was sound policy - by Owen Martin

While the Irish media make a fuss over who will be the next leader of Ireland's biggest political party (Fine Gael), everybody ignores the real elephant in the room. According to the European Banking Authority, Ireland has the largest combined private and government debt as a percentage of GDP in the EU and two thirds higher than that of the US. 

 I'm not sure how this graph is not sending shockwaves through the Trump obsessed Irish media and political establishment - From EBA 

   
While Greece, Italy and Portugal have higher Government debt, Ireland's private sector debt to GDP dwarfs those countries. Which means that for the size of Ireland's economy, it's private sector has taken on alot of debt.

But not only businesses and industry. We have the 5th highest household debt as percentage of net disposable income in EU with about twice as much debt as income per household. This may explain how we rank so high in numbers of new cars across the EU.   People are taking out car loans that perhaps they can't really afford. It shows that we as a nation are still addicted to debt.

https://data.oecd.org/hha/household-debt.htm

Denmark, Netherlands, Iceland and Norway all have higher household debt than Ireland but these countries are doing much better when it comes to Government debt as percentage of GDP. Ireland ranks 5th in terms of Government debt to GDP. So while Greece and Italy have higher levels of government debt, they have about half of the household and private sector debt. Denmark's high level of household debt doesn't seem as bad considering they have half of Ireland's Government debt to GDP. 

https://data.oecd.org/gga/central-government-spending.htm#indicator-chart

Norway have the wealthiest government in Europe. In fact, they are far ahead of second place Luxembourg and Finland. Norway has slightly more household debt than Ireland. But that kinda makes sense - they are a wealthy country. Ireland has the 5th poorest Government in Europe (Italy and Greece lie at the bottom). Our government has dismal revenue, in part thanks to our low corporation tax rates. Yet we carry roughly the same household debt as Norway and have an even higher private sector debt to GDP.  This is called "living beyond our means".  Yes, Ireland could do with the € 13 billion in tax revenue owed from Apple. Laughably, the Irish government is appealing this decision. 

https://data.oecd.org/gga/general-government-financial-wealth.htm#indicator-chart

Irish Govt has the worst revenue in Europe yet reject a €13 billion EU tax ruling made in Ireland's favour

Of course if all that debt was used wisely, perhaps we could become richer. We are reliant on Norway's gas which arrives to us through UK pipelines. The Irish government have banned fracking so this dependence will continue for the foreseeable future. Imagine if some of that debt was being used to extract our own gas reserves.

Ireland spends the most on health after Iceland in Europe, yet we still have a permanently dysfunctional health system. 

Ireland has the third highest electricity prices in Europe.

The Irish government takes pride in divesting from fossil fuels and pushing through massive renewables and electricity infrastructure programmes that cost billions and without any proper assessment in the name of climate change.  We pride ourselves on having a massive welfare program and our representatives want to take in more refugees (without any proper assessment). Green/Left politicians cry out as to why we don't do more to tackle climate change, take on more debt (One cannot go the EIB looking for €5 million or €10 million; one needs to go looking for €2 billion. It is there.) and take in more refugees. Ireland is trying to save the world on a sinking ship but our politicians and media don't even realize we are on one.  Have we learned anything from the crash in 2008 ?


POSITIVES

On the positive side, exports are still strong and benefit from the stronger dollar as against the euro. If we went back to our own currency, it would be a strong one as the above graph shows. Presumably thanks to our exports. However, the weaker sterling is not good for exports to Britain. There is a chance that Ireland may actually benefit from Brexit if companies there relocate to Ireland. 

https://data.oecd.org/gga/general-government-deficit.htm#indicator-chart

Ireland has managed to get out of it's budget deficit abyss and back to something fairly normal. If Multinationals move out we could see some real problems, but we would no longer see the massive distortions to our GDP anymore. Perhaps that could be a good thing in the long run. Living on a false economy (now known as Leprechaun economics) is what got us into trouble last time.

I can't see how Ireland's economic fundamentals are much different to that of the Celtic Tiger era.   If anything, things have got worse.

Green Economics Brings Down Government

Green Party Northern Ireland manifesto for 2016 election

I always knew Green policies were bad because of, among other things the underlying economics, but I never thought I'd see the day when they would bring down a government assembly like it has in Northern Ireland. I blogged about the Renewable Heat Incentive scheme (known as Cash for Ash) before here. For every £1.00 spent on wood pellets, a participant in the scheme got paid £1.60. It didn't dawn on the people in charge that this was an invitation to burn as much wood as possible, effectively leading to the government burning it's own money. And lots of it. 

The cost of this outrageous scheme is estimated to be over £1 billion over the next 20 years. A huge sum for Northern Ireland which relies on a £10 billion block grant from England every year and runs a fiscal deficit of about £ 9 billion. Now there are claims that whisteblowers were ignored and pressure exerted by officials to keep the scheme going. 

You didn't need to be a trained economist to know the scheme couldn't work. Although the Green Party only has 2 seats in the assembly, there is a strong green ethos in the ruling party, the DUP. Their leader, Arlene Foster, took much of the blame and responsibility for the design of the scheme.

I could find no mention of renewables or green energy in the Sinn Fein (the second largest party) manifesto for 2016. It appears it was taken off the agenda in favor of their "Green Paper on Irish Unity".  Their leader, Martin McGuinness who was the Deputy First Minister, resigned last week over the matter forcing another election. 

Hopefully there is a lesson in all this - green policies and green economics are mostly for the scrapheap. The only people they benefit are the very rich in society.

Rise in PSO Levy Angers Irish Industry

It appears that reality is beginning to bite at The Irish Times in view of the many large industries (some of the biggest employers in the country) complaining about the rise in PSO Levy to fund more wind farms. 

Full Article Here.

In a submission to the CER before it arrived at its final decision, tech giant Microsoft, which employs 1,200 people in the Republic, said this penalises large energy users who are holding energy capacity in reserve to meet anticipated growth.

The multinational also points out that the rate at which the PSO has increased over the last five years represents a “rate shock” for large energy users and “puts the Ireland energy market at a disadvantage”. In a similar vein, Irish food and ingredients giant, Kerry, which employs 4,000 people here, warns that the charge will damage its competitiveness.

Irish Energy Blog has been warning about this for years now, but the warnings have fallen on deaf ears. The Irish Times have been calling for more renewable energy for a long time now and have allowed the wind industry to spread their propaganda far and wide. To be fair, they were not the only ones. 

The only journalist that is going to come out well of this is Colm McCarthy. Of course, there will be no accountability for what will happen in the next few years. An exodus of large companies coupled with a hit from any prolonged Brexit negotiations will see us well back in recession and rising unemployment once again. At a time of record low oil and gas prices.

Will we ever learn....

Hinkley Point

I've written previously about the economics of electricity generation here. 

The Hinkley Point debacle has confirmed my analysis. Modern power stations have become uneconomical to run, investors demand large subsidies as incentive to build them, governments have to keep the lights on while satisfying the ever increasing demands of the greens and their cohorts in the renewable unreliable energy industry.

It can only end in disaster, unless that is, Greg Clark and Theresa May can bring normality back to the post Brexit UK energy market. 

They will need to move quicker on the Article 50 button before the lights go out.  

The Modern Economics of Electricity Generation - UK, A Case Study

Hundreds of millions of pounds worth of subsidies will be handed to highly polluting diesel-fuelled electricity generators, under plans to preventpower shortages over the next few years.Companies have registered to provide 4,000 megawatts of standby power under a government auction scheme designed to help the UK cope with the intermittent nature of wind and solar energy - The Times, November 2015.

In an article written by Irish Energy Blog last June, it was stated that: (The economics of electricity generation)

 So now, we enter into a new era of electricity generation economics where subsidies are required to maintain all generators, not just the renewables. 

This is precisely what is now happening in the UK. Due to the fact that they have invested heavily in non dispatchable renewable generation, they are facing a shortage in dispatchable generation - that is, generation available on demand. The quickest solution to this problem is to use diesel generators. But these diesel generators will be running intermittently and would not be economically viable.  So the UK National Grid will pay subsidies to diesel generator owners to maintain their capacity available on standby.

A similar situation is happening in Ireland where DSUs (demand side units) get paid capacity payments. There is now 160MW of these diesel generators in Ireland.

Had UK invested in dispatchable plant, like CCGT gas plants, they would now be using cheaper and cleaner more efficient forms of generation instead of diesel. Unintended consequences of the Green Energy Rush are now hitting home.