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Lessons from the Irish Recovery

Europe is mired in economic recession.  Ireland, however, is not.  Ireland can also be said to no longer be part of PIGS, an acronym Goldman Sachs came up with to describe four countries (Portugal, Ireland, Greece, and Spain) with what appeared to be an insurmountable government deficit and debt.  Italy instead has become the ‘I’ in PIGS, with Ireland exiting.

Ireland suffered great pains after a sharp housing market crash that was far more severe than the one seen in the U.S.  But Ireland quickly recognized the massive economic problem as resulting from its own excesses and took swift actions to rectify the situation.  Government spending was slashed, including a 20 percent cut to government employee salaries, and taxes were raised.  By contrast, Greece continues to rely on loans from Germany, EU, IMF, and the European Central Bank.  Greece has not made any significant reforms like Ireland, but instead continues to blame German banks and the messy American financial crisis of the past years.  Greece is in a ‘great depression’ with the unemployment rate topping 25 percent.

The Irish economy prior to the housing market crash was so exceptional among European countries in pumping out high-valued technology and pharmaceutical products that it was known as the Celtic Tiger (like the Asian Tiger economies).  Britain for a large chunk of history viewed Ireland as third class citizens and only allowed home rule less than a century ago.  But times change and it is always heartening to witness a hard working underdog make strong advancements.  Though Ireland today is by no means back to pre-recession conditions, its economy and the housing market are slowly healing and moving in the right direction as a result of owning up to its problems.  Continued growth could put Ireland back ahead of Britain in average income per person in a few years.

A similar analogy can be made to Japan and Korea, or South Korea at least.  For a long time Japan held Korea in low regard.  However, with the recent launch by the South Korean company Samsung of its latest Galaxy handheld devices, South Koreans could possibly overtake the average income level of the Japanese within a decade.  South Korea also has many more after-school English classes compared to Japan, and English ability (in my opinion) is a leading indicator about faster future economic growth.  Just look at Singapore, where about 15 percent of the households are millionaires despite having virtually no natural resource other than the ingenuity of its people. This could be related to the fact that everyone speaks English in Singapore and they put the greatest emphasis in protecting private property.

At any rate, it’s something to ponder while lifting a glass during St. Patrick’s Day.

Recent news articles on the Irish economy and the housing market for those interested:

http://www.washingtonpost.com/business/economy/is-ireland-an-economic-example-or-exception-for-the-euro-zone/2013/03/13/6da0c9cc-8c1d-11e2-b63f-f53fb9f2fcb4_story.html

http://www.bloomberg.com/news/2013-02-28/dublin-home-prices-rise-on-year-for-first-time-since-2007.html

Lawrence Yun, Chief Economist

Lawrence Yun is Chief Economist and Senior Vice President of Research at NAR. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1 million REALTOR® members.

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