Current Economic Crisis Frances Ruane Economic and Social Research - - PowerPoint PPT Presentation

Impact and Origins of the Current Economic Crisis

Frances Ruane Economic and Social Research Institute

Views expressed are personal

Introduction

• Crisis has had a major negative impact on income

and employment, and a still larger negative impact

• n unemployment rate and numbers – See Figure 1.
• Key specific failures

– Weak evolution of good governance – Weak enforcement of regulations – Culture of openness not developed – Over-emphasis on consensus

• Look at how individuals/organisations are being

affected

Fig 1:Income Per Capita 1997-2011

5 10 15 20 25 30 35 40 45 50 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 GDP constant prices GNP constant prices GDP current prices GNP current prices

Which Groups?

• Consumers
• Employees
• Enterprises
• Civil service
• Politicians
• Banks

Impact of the Crisis 1

Consumers Employees Enterprises

Exposed to housing debt with increases in wages unlikely Older – OK if not in bank shares or with pension risk Challenging for the young Rebuilding balance sheets due to over- borrowed Precautionary Saving Personally Frustrated Facing very weak domestic markets Many heavily

• ver-borrowed

SMEs facing credit constraints

Impact of the Crisis 2

Civil Service Politicians Banks

Slow Legislative process undermines reputation Challenge of managing different audiences Tough unpopular decisions Challenging fiscal deficit Magnified reform challenge Perceived loss of trust/ reputation Mixed message for behaviour Massive scale of adjustment needed Loss of Reputation

Triggers of Crisis

International

• Rapid global integration of financial markets

without adequate global governance/oversight

• Creation of Euro without adequate scoping of

regulatory/prudential requirements National

• Inadequate regulation of domestic Irish Banks

Were there any elements specifically Irish?

Elements in the Crisis

Use the same groups as previously to look at behaviours in lead up to the crisis :

• Consumers
• Employees
• Enterprises
• Civil service
• Politicians
• Banks

Key Elements in the Crisis 1

Consumers Employees Enterprises

Presumed tax reductions Presumed skill sets were adequate Presumed income increases Excessive borrowing Failure to understand finances Naive presumptions about house/ share prices Made risky investments Focused on short-term gains Underinvested in human capital, innovation, technology, export marketing

Key Elements in the Crisis 2

Civil Service Politicians Banks

Failure to reform planning and legislative processes Ignored signals re housing market/pro- cyclical policy Failure to appreciate fully risk to revenue base Inadequate systems for ensuring efficient spending Inadequate collection/ use of data Reckless competition for market share Ignored history of relationships Unbalanced loan book Inadequate governance Risk-inducing remuneration systems Discouraged debate and difference

Suggestion: Do not waste the

• pportunity created by this crisis!

Give serious attention to: Governance Legislation/Regulation Enforcement Human Behaviour