Irish Economy Over the Last Two Years - Essay Example

To this end, governments use tools of macro-economic policy, like fiscal, monetary, and exchange rate policies (Palmer, n.d).

The Irish economy is a member of the European Union and controlled by the European Central Bank (ECB) and thus does not have perfect autonomy when it comes to making its economic policy. The ECB has a vested interest in the Euro remaining integrated across Europe and thus the interest rates implemented across all the members of the European Union have a greater agenda than that country’s economy;  to keep the Euro healthy. By setting monetary policy and exchange rate, the ECB makes sure that there is price stability. However, since policies are implemented under an umbrella, sometimes decisions of the ECB for the European Union’s greater good may prove to be detrimental for a particular economy which is precisely what happened with Ireland (Palmer, n.d).

The Irish crisis hit full swing in 2008 when Lehman Brothers collapsed. Their financial sector was weak and out in the open and vulnerability was high. Ireland found it particularly hard to recover from its substantial overseas debt. Fearing contagion, the government introduced a blanket liability guarantee; however, this backfired severely, destroying Ireland’s credit image and creating political tension for Ireland. (Connor et al., 2010).

However, after going through a really bad time, the Irish economy finally showed positive signs in 2010, it was expected that with recovery the economy would gain full strength. The unemployment figures also rose substantially around this time but subsequently normalized. In the second half of 2010, the Irish government took a large loan from its fellow members of the EU which was aimed at increasing growth and improving the financial system. The new policy saw strong implementation, after the first two quarters a lot of improvement was seen. The policy objectives also aimed at improving employment in the economy and improving Ireland’s competitiveness in the global market. Deflation in Ireland finally started lifting off in 2011, prices began rising as factors that had been depressing them were alleviated by the new policy implementation. A jobs initiative was also put forward around the same time with the aim of creating over 20,000 jobs. The economy of Ireland finally recovered in a plan which is divided into five stages. Stage one; export-led growth, this is where net exports were increased so that competitiveness would increase. Net exports had increased by over 9% by 2010. Stage two; investment, increasing FDI in Ireland helped create demand for it in the world market. Stage three, employment increment, expansion in this area occurs as a joint effect by the first two stages. Stage four; improved spending, increase disposable income, and consequently spending of households are increased. Stage five; make a demand for domestic goods stronger, this will cause an increase in tax collections and economic growth will pick up. (Hickey, 2011).

As part of the fixing up of Ireland through the new policy, the government also strengthened the capital base of its domestic banks. This was thought to have strengthened that sector and eventually Ireland’s financial institutions and markets. (Langedijk, 2011).

Summing up, we look at where Ireland stands in 2012 to see whether the policy objectives and vision of the Irish government with respect to its economy have been able to be successful over the last two years. According to this report published by the Department of finance in May 2012, the pattern of economic growth that started after numerous years in 2011 as a result of the Government’s economic policy implementation has continued as a trend in 2012 and the Government expects that 2013 will experience economic growth too and even bigger in scale. Export performance for Ireland also continued increasing over the two years. Unemployment rates were at their highest peak in 2011, but by 2012 these numbers had stabilized and so had Ireland’s labor market. This shows that the government was successful in getting the export performance and competitiveness for Ireland up to the mark and being able to maintain this strong position while also stabilizing the issue of unemployment in the economy. 2011 also witness a falling budget deficit for Ireland and an improving public finance system. GDP growth was also picking up rapidly during this time for the first time in years. The government focused on indirect taxation in 2012 which was less damaging to the economy and contributed large revenues for the government. The goal of the Irish government was to make public finance sustainable so that nothing as bad as the financial crisis would happen to them again. However, the economy was not able to control debt levels that had been rising and were projected to rise over the years. Labor markets were made more flexible; exports increased and competitiveness in the world market was also seen as an upward trend. (Department of Finance, 2012).