Western Europe's economies in epic decline

The headlines today are filled with reports of how America's economy declined by a 6.1% annual rate in the first quarter. Far worse than expected.

But that's nothing compared to Ireland's economy, which is shrinking at a rate no industrialized nation has seen since the Great Depression.

(Bloomberg) -- Ireland’s economy may shrink almost 12 percent in the three years through 2010, the biggest decline of any industrialized country since the Great Depression of the 1930s, the country’s Economic & Social Research Institute said.

Gross domestic product may decline 8.3 percent this year, the Dublin-based institute said in its quarterly report today, more than double the contraction it forecast in December.
“We’re remarkably exposed” to the global slump, said Alan Barrett, senior economist at the ESRI. “But it always comes back to housing,” which during the boom accounted for more than 20 percent of economic growth.

Ireland’s $240 billion economy will probably shrink 1.1 percent in 2010, according to the institute. It receded by 2.3 percent last year, the first full-year contraction in a quarter century.

The budget deficit may climb to 12 percent of GDP this year, four times the European Union limit, even as Prime Minister Brian Cowen’s government raises income taxes and cuts spending on public services.

A rapidly contracting economy following a huge housing bubble, and now a budget deficit above 12%. That sounds very similar to what is going on next door in Britain.

“By 2010, the U.K. will have the largest budget deficit in the developed world,” said Richard Snook, a senior economist at the Center for Economic and Business Research in London. “The problem is that the financial services industry has been a huge cash cow for the British government for the last 10 years and now it is going into reverse.”

The country’s budget deficit has soared to 12 percent of gross domestic product; its public debt burden could soon reach 80 percent of annual economic output, a figure that would leave it roughly in the same position as Greece.

That's not to say that the housing bubble implosion is limited to english-speaking countries. Spain saw a similar housing bubble that has now burst. Spain's economy is shrinking at its fastest pace in 40 years, when Franco was still dictator.

The economy contracted 1.8 percent in the first three months compared with a 1 percent contraction in the fourth quarter, the central bank said in its monthly bulletin today. From a year earlier, the economy contracted 2.9 percent. Both numbers were the sharpest declines since at least 1970, according to data from the National Statistics Institute, which publishes its own estimate of gross domestic product on May 14.

Spain is at the forefront of Europe’s economic crisis and accounts for more than half of the increase in euro-region joblessness in the past year. The collapse of the country’s housing boom, which allowed economic growth to outpace the European Union for more than a decade, has triggered the deepest recession in half a century. Consumer prices are declining, fueling deflation risks, and a rising budget deficit prompted Standard & Poor’s to cut Spain’s credit rating in January.

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how's that free trade working out fer ya all

I know maybe this snide remark doesn't seem relevant but to me it is.....they came up with all of these debt laden, bubble economies to hide the fact all of these middle classes are being labor arbitraged and losing their wealth.

i.e. Race to the Bottom. and still they are not addressing this fundamental problem that people, their incomes, their ability to earn a living should not be up for swapping, i.e. for trade in order to the benefits of trade to be realized.

tick tock tick tock

you hear that? It's the demographics clock. It's ticking away, Europe edging closer to becoming a land of green pastures where industry once stood, with their mass transit system shuttling the two dominant groups around....the natives now mainly senior citizens and their immigrant caretakers from places like Turkey or Algeria. You don't even want to figure out how the whole thing is being paid for by that point!

Ireland was one of the first outsourcing destinations

Early in the years of IT outsourcing, Ireland was the place that companies went to. Like India, they didn't have a strong IT presence but they had people who would work cheaply. They also had people who spoke English as their native language (something India doesn't have, despite what the press believes). As more work went there, the relatively small workforce was taken up quickly and salaries increased in response. Eventually, the labor arbitrage broke down because it was no longer cheaper to move work there. They were used by the global corporations.

This is the same thing that will eventually happen to India. India has the advantage that they have many more people, but only a small percentage of them have the education, knowledge and literacy to do the work. At some point, the costs of these people will increase such that it will be cheaper to send the work to another country. Unfortunately, most of the jobs won't come back to the US. They'll end up in places like Viet Nam or China.

Balycoolin Ireland

I worked in Ireland for a few months. It was like a mini Silicon Valley. Lots of new outsourcing projects are not going to India, they are going to other markets like the Philippines and Argentina. This has started because of lack of a skilled and stable labor pool plus the costs of telecommunications in India. The Indian terrorist incident also helped accelerate the movement since India is not a safe place to outsource.

I read an article last week that America is one of the best rated places to Outsource to.

yeah, I'm sure that is becoming true

Now that they decimated the entire middle class and economy...all that is left is for the U.S. dollar to collapse so they can further realize their "cost savings" by labor exploitation.

Well, one thing is assured, Ireland is in deep dodo so I don't think those free trade policies (outsourcing is not within the realm of the real trade theory, just a bunch of exploiters try to make it seem so due to their own financial interests) are workin' out too well.

Here is something I have heard repeatedly from executives in a decision to outsource to Ireland and that is health care costs. They save a good 30% just on that because our health care costs are so high for employers.

So the two offshore Anglo Disease economies are ...

... being hammered, and Spain is the worst of the Continental economies, shrinking by 3%, year on year.

If Spain has had half of the unemployment generated since the recession washed across the Atlantic, no wonder Germany and France are balking at going heavily into debt to prop up the Anglo Disease economies.