Asking for external aid not a disaster, says top economist

ASKING for external aid is not a disaster for countries such as Ireland, Bank of America Merrill Lynch senior economist, Silvia Ardagna, said at the bank’s Global Year Ahead event in London yesterday.

The bank expects peripheral countries such as Ireland to catch up and do well towards the end of 2011, contributing to overall eurozone growth or 1.7% in 2011 and 2.1% in 2012. In the euro area, activity should be subdued in the first half of next year: this period will likely coincide with the implementation of widespread austerity measures, some pass-through from a stronger euro (5% up from the last six months) and a tumultuous period of identifying which of the peripherals joins Ireland into the EU/IMF safety net.

It was stressed that Ireland’s problems arise from the banking sector and not from the public finances, but that the solution will put more pressure on the sovereign as the Government will be taking on the additional burden.

Despite a disappointing Q2 2010, FDI flow over the past two years suggests to Bank of America Merrill Lynch that entrepreneurs are finding Ireland attractive again.

Mr Ardagna said: “The business friendly type of fiscal adjustment implemented so far (ie one realised mostly by cutting public wages, public employment, public consumption and the size of the welfare state rather than by increasing taxes), and the wage cuts in the private sector are helping Ireland to restore its competitiveness.”

As competitiveness and exports increase, the bank expects business investment to rise too, fostering growth and employment.