I was in Ireland the other week and I noticed a new trend. Many of the pubs in Ireland have traditionally consisted of a bar, which is basically the old man’s pub and the lounge where the younger crowd hang out. Now many of the pubs have closed off one of these parts of the pub, and re-opened it as an off license. And that’s the pubs that have managed to stay open. Many smaller pubs in Ireland are closing altogether.
The publicans blame various things for this, the smoking ban, the lower drink driving limits, higher VAT on booze. But ultimately the real reason is the state of the economy. Now you would think that selling beer to the Irish was practically a license to print money (kind of the polar opposite of selling freezers to the Eskimos!). But with the current state of the economy many Irish are cutting back on their spending (not drinking mind, jasus we drank enough back in the old days when we had no good reason to drink, now we’ve plenty of reasons!) and drinking at home. Its a telling trend of how bad things are when even pubs are in trouble.
While many Irish firms seem to be taking it all in their stride, indeed for large sections of the Irish economy its business as usual. But there are still plenty of boarded up businesses. Just around the corner from me there’s a factory (in business for twenty years and was going strong up until it was bought out) that was closed down by a developer because he wanted to knock it and build apartments. Now its just a derelict site. Further down the road there’s a set of traffic lights which is meant to allow access to a small industrial estate. They are a waste of time now, as all of the businesses down that street (mostly builders merchants) have closed down. The number of pawn shops in the country has exploded. There used to be just one in Cork, now they are all over the place.
Capitalists will often say that recessions are good, because they allow for those firms that are bloated and inefficient to go bust to the benefit of more competitive enterprises. That’s not quite what’s happening in Ireland. A number of smaller shops which were well run, in some cases offering better prices than the chain stores have closed down, likely because they ran out of short term capital. By contrast the larger but less efficient firms are still in business (using their large size and cash reserves to weather the storm). This is one of the flaws of capitalism, sometimes it is not the most competitive firms that survive, but the biggest. The danger is that the Irish high street will go through the same process that was seen in the British high street after Thatcher’s recession. All the local firms will close down, leaving a line of overpriced chain stores, making every town a virtual clone of the next.
Of course in the UK, they are ahead of the curve. The next phase of decline, which we’ve already seen happen in the US, has all the chain stores closing in the city centre and moving to out of town shopping malls, leaving the city centre to be taken over by pound and pawn shops, or simply boarded up and abandoned.
Meanwhile Back in Brussels….
Meanwhile, the ECB announced that it would start buying the bonds and security’s of troubled Eurozone countries. Now I would note that I’ve been calling for this sort of action for well over a year. While by itself, it would still be insufficient to completely rescue the euro (fundamentally there are problems inherent in the euro that need to be solved, the situation in the Spanish regions is a classic example).
But taking some of these measures now proposed earlier would have bought a lot of time. It would have meant there may not have been the need for a bailout of Greece or Ireland. The harsh austerity measures and the devastating economic effects that they had would not have occurred. Indeed with Ireland and Greece would now be in the process of recovery. The haircut to Greece’s creditors might have been avoided. All in all the crisis would be well on the way to being solved.
However, its probably too late now for these measures to have the effect the EU was hoping for. A year and a half was wasted due to the dithering of Merkel. Part of being in government is to make unpopular decisions for the long term good of the country. As I’ve previously pointed out, if the eurozone collapses much of the bill for that will land in Frankfurt and London.
Debt is also a two way street. The lender has a moral responsibility (if not a sound financial reason) not to lend recklessly to people who can’t pay such loans back. This is why pay day lenders (whose entire business model revolves around lending too people who can’t pay the loan back) get such a bad rap. Thus, the German policy of both blaming Greek’s for everything, or that screwing the Greeks (or Irish) over, essentially acting as Europe’s largest loan shark, isn’t going to magically make them pay all the money back.
Germany has the most too loose from a eurozone collapse. Aside from having to foot a bill of a trillion or so euros, Germany would also loose its economic competitiveness. Consider how UK manufacturing practically died on its feet due to the effects of the UK staying out, while Germany’s manufacturing went up (currently at 29% of GDP). Indeed Ireland, despite our problems, has a higher proportion of its GDP (46%) tied up in manufacturing than the UK (21%). The Germans have therefore as much, if not even more of an incentive, to fix the Euro than anyone else. One can only hope its not too late.