Editorial
Bailing out Irish economy
We need to remain vigilant against similar pitfalls in the future
The Republic of Ireland seems to be in a crisis of historic proportions. For its banking system has lost confidence of the depositors and the government has already bankrolled to the tune of $60 billion to bail them out. As it happened in the USA in 2008 when the US government had to come to the rescue of the bankrupt financial institutions and big businesses, so it is now the turn of the Irish government to save its financial institutions with the taxpayers' money. But the government already facing a huge budgetary deficit is not in a position to shoulder the burden alone. Which is why it is now in need of external assistance to get over the crisis.
The European Union (EU), the European Central Bank (ECB) and International Monetary Fund (IMF) officials are now in the country's capital Dublin to discuss the crisis and what they can do for Ireland in this respect. But it is hardly surprising that many government leaders including members of the older generation are finding it so hard to digest the fact that they have to look for such foreign help in the first place.
And to add fuel to the fire, the EU leaders, especially Germany and France, are asking Ireland to raise its corporate tax to bolster the government's revenue earning. But as the Deputy Prime Minister Mary Coughlan said the 12.5 per cent corporate rate, w3hich is very low compared to the average European rate, was "non-negotiable."
In the circumstances, will the Irish government be able to broker a fair deal with the EU and IMF officials in Dublin? For raising of the corporate tax would certainly be seen as a disincentive by the multinationals and other big investors in the Irish economy. For an economy already battered by its major banks going broke one by one, any flight of big capital from it may prove to be the last straw that broke the back of the proverbial camel.
The bail-out package, which, if Ireland is ready to accept the conditionalities, would be around $108 billion. But is there a guarantee that the fund will save the Irish financial institutions and the economy at large? This is a big question before the present leadership of Ireland to answer in unambiguous terms.
But there is lesson for developing economies like Bangladesh from the financial crises that the developed economies have been falling into one after another. The banks in those economies have become too big, while the loans they extended have gone beyond their limits. The booming property market was the biggest casualty of the overstretched bank loans. But it was not the property market alone, the entire economy and along with it the consumer habit was whetted by cheap credit and all its derivatives. But spending beyond ones means is not a sustainable way to prosper. So, it was not at all surprising when the day of reckoning arrived. The Western economies are now paying the price for their profligacy. It is however, not a basic flaw of the free market economy as such. On the other hand, the present crisis rather reflects the failure of the American model of credit-crazy free market economy. Hence it is now the turn of the smaller western economies like Greece, Ireland, Spain and Portugal that followed the same model to face the music.
The good news is the highly developed western economies are trying to mend their spendthrift ways. That the Asian economies were so far less affected by the western economic downturn was only because they were yet to catch up fully with the advanced consumerism and their excessively credit-dependent transactions. Now with painful European and American lessons before them, the Asian economies, as demonstrated by China so far, may well avoid the slippery path trodden by the highly advanced countries. In Bangladesh, we must also remain vigilant against any similar pitfalls in the future.
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