Irish Economy Remains Weak, Could Effect Indiana
While Greece had been seen as the main threat to the viability of the euro, in the last week, the financial markets have started to focus on another Eurozone member as a potential candidate to default on its debt—Ireland. The Irish economy was one of the first to go into a recession at the beginning of the Global Financial Crisis, and the Irish government had received wide praise for its austerity package to reduce its government deficit.
However, it was reported on Thursday that the Irish economy had contracted by 1.2% in the second quarter. As the BBC Commentator Gavin Hewitt pointed out, Ireland is now in an ambiguous situation. The Irish government has shown that it can still raise money, as its bond issue on Monday was oversubscribed. However, as I wrote on Tuesday, Ireland must pay dearly for this money, as the interest rate on 10-year bonds is now more than 6%. Furthermore, the Irish government still needs to resolve outstanding issues with its banking system, which will require more funds. Thus, some analysts believe that the question of Irish solvency will remain for at least the rest of the year.
As always, what does this mean for the US? This week, the Indiana Business Research Center, in partnership with IU West European Studies, published an article in InContext on Ireland. Besides detailing the rise of the “Celtic Tiger” and its decline during the Economic Crisis, this article also points out Indiana’s strong economic ties with Ireland. Indiana exports to Ireland grow from less than $200 million in 2006 to almost $450 million in 2009, despite Ireland’s economic downturn. In fact, Ireland was the 6th largest market in Europe for Indiana goods in 2009 and by far saw the largest increase (see “2009 a mixed picture for Indiana’s exports to Western Europe” for more information). Interestingly, much of the increased trade in 2009 was in pharmaceutical products so that Indiana became the main American source of pharmaceutical products for Ireland. Additionally, the Indianapolis based Eli Lilly Company has announced that it is about to build a $520 million facility in Ireland.
As a result, the Indiana and Irish economies are strongly tied together, and the Irish chapter of the Euro Financial Crisis could have a direct effect on Indiana. This is yet another reason for the European Union Center will be sponsoring the “The Euro and its Effects on the Midwest” in Indianapolis on November 18.