Sick Celtic Tiger

By: Dr. Mike Campbell

In the 1990s, the economy of the Republic of Ireland was transformed, taking it from one of Europe’s poorest nations to the top of the European league. It had the second best GDP of all the EU countries after Luxembourg. The term “Celtic Tiger” was coined to refer to their economy and the dynamism of their people, but all of that has faded into dream against the harsh reality of the global financial crisis. Today, ratings agency Moody’s has downgraded the nation’s credit rating from Aa1 to Aa2, meaning that, in the eyes of the ratings agency, the risk that the nation could default on its debt has crept up.

The rationale behind Moody’s decision was that the country had suffered a gradual, but significant decline in its financial strength. This had been mainly because the banking and property sectors, which had largely led the Irish renaissance, were likely to languish in the doldrums for some years to come, according to Moody’s.

Another reason cited by Moody’s was concern over the extent of the Irish debt (Ireland is a member of the Eurozone group of nations). Whilst there is no indication whatsoever that Ireland is having any problem honouring its financial commitments, the downgrade is likely to make traders look carefully at their Euro positions again. However, it is entirely likely that short of disastrous news, Forex traders may have concluded that the currency is at the bottom of its natural range; besides, there aren’t that many safe-haven currencies to choose from right now. Perhaps the Canadian and Australian currencies could be worth a closer look.

Ireland officially exited it recession only in Q1 2010, and the downturn in both the commercial and employment sectors has meant that the Irish exchequer has had to contend with lower receipts from these two areas.