Global recession bites across Celtic nations
- Published in Monthly News
The economic downturn affecting the world has hit the Celtic nations' financial systems causing a sharp fall in house prices, a decline in manufacturing and exports, and a rise in unemployment.
Ireland's Celtic Tiger first to be hit by global recession
Ireland was the first Celtic economy to enter a full-blown recession following the world's financial markets meltdown in September 2008.
The Irish economy, which saw high growth rates and outperformed most other countries in the EU during the last decade, was severely hit by the global recession as exports represent around four-fifths of the country's national output, which is more than double the EU average.
Signs of economic slowdown had already been detected in the Irish economy during summer 2008, when house prices hit their lowest level in over two years and the Consumer Sentiment Index fell to its lowest point since the survey began in 1996.
Following the dramatic fall of share values in the global financial markets during September and October 2008, the Irish Government decided to protect the Irish banking system by putting in place an emergency guarantee arrangement which safeguarded all deposits and borrowings made in Irish banks.
The Government's guarantee, which covered the nation's six banks and safeguarded over €400bn of savings and borrowings, was praised by analysts as the safest system in the EU and was later followed by other European nations.
Irish opposition parties widely agreed with the Government's decision to underwrite billions of borrowings and deposits, but warned that the guarantee was the equivalent of up to €250,000 per taxpayer, which is almost three times Ireland's national income. Irish Labour leader told "It is a guarantee that, if it were called in full, would take 37 years of income tax receipts to clear."
Taoiseach Brian Cowen reminded the Dáil, the Irish Parliament, that “this is the most severe financial crisis since the Great Depression" and told the greatest risk to the stability of the Irish financial system was to do nothing.
"Without a stable banking system, we have no economy and no prospects," said the head of the Irish Government.
Mr Cowen stressed “too many good businesses had run into difficulties because the banks stopped doing what they were there to do," and defended his Government's multi-billion guarantee as the only way to ensure that banks have access to liquidity and funds to conduct their business.
"Any of you who have been trying to get lines of credit in recent months and who have found the banks, in effect, closed for business should now see a change," told the Taoiseach.
He insisted the Government's guarantee to the Irish banks was not free and said that “in the banking sector there must be a new approach to doing business.”
“Poor standards of behaviour on the part of well-paid executives must not be allowed to result in ordinary, decent people losing their jobs and businesses struggling to stay afloat,” told Mr Cowen.
The Irish Government's banking guarantee was also intended to inject life into the nation’s beleaguered property market.
Average property prices in Ireland fell by 9.1% in 2008, with drops as high as 16.8% in commuter counties surrounding Dublin. House prices are now down to the same level as in the middle of 2005 and analysts believe prices in 2009 will fall by a further 10%.
The high drop in the average house value means that at least 140,000 homeowners, most of them first-time buyers, have already fallen into negative equity, with the value of their home being worth less than the loan they took out to pay for it.
The Irish economy faces another threat as unemployment figures showed a record number of people signing up for social welfare payments.
The unemployment rate in Ireland increased sharply to 7.8% in November 2008 and the Construction Industry Federation warned that up to 50,000 jobs could be lost in this sector by the end of 2009 in the midst the continuing downturn in construction.
There was further bad news for the economy as it was announced that exports of food and drink, which account for 10% of total Irish exports and 8% of the national workforce, also fell by 6.5% during 2008.
Taoiseach Brian Cowen told the Dáil that the recent deterioration in economic growth had resulted in a €6.5bn shortfall in tax revenue.
Mr Cowen said Ireland is “facing the most difficult global economic conditions in 70 years” and warned that “achievement of significant reductions in public service pay and pension costs will only be realistic if the burden of the adjustment is fairly spread across society.”
As the Government announced cutbacks in the national Budget, some 25,000 demonstrators gathered in Dublin in October 2008 to protest against cuts in Health Care and Education.
Wales' housing market slumps to an all time low
As part of the United Kindom, Wales officially entered recession in January 2009 after two consecutive quarters of negative growth.
Wales' housing market suffered the worst slump since records began as the average house price plunged over £20,000 in 2008. The value of the average Welsh home fell by 10.1% from £170,151 in January 2008 down to £150,123 just 10 months later, with the number of property transactions and first-time buyers dropping to an all-time low by December 2008.
The Welsh job market has been hit hard since October 2008 with large industrial groups as well as small business cutting back staff across all sectors of the economy. Unemployment figures have risen up to 95,000 from the relatively low 40,000 unemployed that Wales had in 2007, with analysts predicting the number of unemployed could hit up to 120,000 by Spring 2009.
The international dimension of the crisis was shown as the budgets of Welsh local councils, police forces and universities were directly affected by the Icelandic economy's meltdown.
Finance Minister Andrew Davies announced at the Welsh National Assembly that eight local councils, three police forces and three universities had deposits and investments with Icelandic banks now in receivership.
The total amount of Welsh public money frozen in Icelandic financial institutions following the collapse of Icelandic bank Landsbanki and its subsidiaries was at least £75m.
Mr Davies stated that eight Welsh councils currently had £60m frozen in Icelandic banks, together with £10m and £8.1 among three Welsh police forces and universities respectively. Neath Port Talbot Council was the worst affected by the Icelandic banking crisis with £20 millions at risk, followed by Caerphilly Council with £15m and South Wales Police with £7m.
The Finance Minister said the Welsh Assembly Government was working with the UK government to unfreeze the accounts, and the Local Government Association insisted that public services would not be affected in the short term.
Fears that the Welsh public sector may struggle to provide services due to the global economic crisis were confirmed early in November 2008 as the National Library of Wales announced it will close on Saturdays because of budget costs. Besides hosting the nation's archives, the National Library of Wales is also a popular tourist and conference destination for people from all over Wales and beyond.
Southern Celtic nations fear surge in unemployment
The global credit crunch and a poor outlook for the central government finances have confirmed the Breton and Galician economies as the latest to be affected by the global economic downturn.
The southern Celtic nations' economies were dragged down as France and Spain entered recession in October and December respectively after two consecutive quarters of negative growth.
Unemployment in Brittany and Galicia could rise over 10% during 2009, analysts predicted.
Together with the predicted job losses in the construction industry, the global crisis has added further pressure to the Breton and Galician tourist industry which already had a dismal 2008 because of the bad weather.