The Irish economy’s problems could have a big effect on the city region. Alex Turner reports

IN HIS inauguration speech, President Kennedy, elected 50 years ago this year, warned that “those who foolishly sought power by riding the back of the tiger ended up inside”.

It is a warning that Irish financiers who rode the back of the Celtic tiger economy in the last two decades now have plenty of time to reflect on.

The chief economist at the Organisation for Economic Co-operation and Development (OECD), Pier Carlo Padoan, yesterday said that Ireland’s problem was “an unsustainable growth model”.

How unsustainable became clear when the banking crisis created a tidal wave through the world’s economy.

Since then, the Irish economy has been among the worst-performing in the EU, along with Greece and Portugal.

Ireland was the first country in the eurozone to enter a recession – and now is looking over the precipice of a double-dip recession.

That is despite the Irish Government producing three austerity Budgets between October, 2008, and December, 2009. The fourth will follow on December 7 and is expected to announce cuts of at least £2.5bn.

“Whatever way you cut it, it’s going to be horrible,” said Alan Barrett, research professor at the state-funded Economic and Social Research Institute.

“The low hanging fruit has already been taken. The actual service cuts haven’t gone in as deeply as recommended yet.”

Although the first Budget was met with widespread protests, the need for the deep cuts that it put in place were eventually met with acceptance in Ireland and approval from other countries.

Finance minister Brian Lenihan is widely seen as having done a good job, and UK Treasury representatives have visited their Irish counterparts to learn more about implementing huge cuts.

But the Irish cuts are still to produce a decisive recovery, which hints at the long, hard road ahead for the UK.

Sean McGuire, director of Liverpool-based financial education firm Ambitious Minds, said: “The UK’s economic problems share many of the same characteristics that Ireland has faced – a massive over-reliance on the property market to create wealth, an irresponsible and recklessly under-regulated banking system, too much easy credit and an inflated public sector.

“In Ireland, despite broad social agreement, the cuts imposed thus far, which have involved real wage reductions for many, many people, have not substantially turned things around.

“A contracting Irish economy is bad news for a range of sectors here, from port-related businesses to professional services firms working in both Dublin and Liverpool.

“In addition, the city will only start to see the real aftershocks from the UK recession when the Government embarks on its programme of huge cuts with next month’s Comprehensive Spending Review.

“Liverpool will be battered by the huge reductions in public sector spending and will be looking for some positive signs from the private sector.

“That almost certainly won’t come from increasing exports across the Irish Sea.”

The Port of Liverpool handles 40% of all freight across the Irish Sea. That is more than 6m tonnes, which represents one-fifth of all freight handled by the Port of Liverpool.

In 2009, UK exports to Ireland were worth £15.48bn – around £3,700 per Irish citizen – down £3.3bn from a year earlier.

It remains a critical trading partner for the UK. It is its fifth-largest export market, behind only USA, Germany, France and the Netherlands.

In terms of two-way trade, its total value is more than £27bn, the same value as China (although 82% of the UK’s trade with China is imports).

The major products travelling east over the Irish Sea include organic chemicals, pharmaceuticals, and meat and dairy products.

Travelling in the opposition direction are mineral oils and fuels, electrical equipment and machinery, and pharmaceuticals.

However, signs of fragility in Anglo-Irish shipping stretches back further than the recession.

In the four years from 2005 to 2009, cargo between the Irish Republic and the UK fell by 19.4% to 15.6m tonnes, compared with a fall in all freight of 14.1%.

Before the impact of the recession, which hit global shipping hard last year, the Anglo-Irish trade levels had already fallen significantly – down 8.7% between 2005 and 2008, more than twice the 3.9% decline of UK freight trade.

Peel Ports Mersey head of business development, Stephen Carr, attributes the decline to some companies relocating from Ireland.

He said: “Our lift-on/ lift-off traffic to Ireland is marginally down in the first half of the year, but roll-on/ roll-off traffic is up.

“We believe this is due to companies closing delivery centres in Ireland during the recession, and supplying from distribution centres in North West England – with resultant fewer containers, but more trucks making the journey across the Irish Sea.”

Last week, LDP Business revealed that Norfolkline Irish Sea Ferries, now part of Danish shipping giant DFDS Seaways, had lost £10.5m in 2009.

The Birkenhead-based company blamed “adverse trading conditions” for the poor figures, after the UK followed Ireland into a prolonged recession.

Norfolkline Irish Sea Ferries has 2,500 sailings a year on its Belfast-Birkenhead and Dublin-Birkenhead routes, which take passengers and freight.

Another 1,800 sailings a year go from the two Irish capital cities to Heysham, which are freight-only routes.

But economic data from Ireland released last week cast significant doubt over whether an improvement is on the way.

It showed the Irish economy began to contract again between April and June, after showing the first signs of recovery in the previous three months.

Joan Burton, finance spokeswoman for the opposition Labour Party, said the 1.2% fall showed the Irish economy had “suffered a dead cat bounce”.

Yesterday, ratings agency Standard & Poor warned it may cut the country’s credit ranking further, less than two months since it was downgraded to AA-. That’s because of the cost of recapitalising nationalised Anglo Irish Bank, pushing Dublin’s borrowing costs to fresh peaks.

Ireland is battling to convince investors it can afford to prop up its ailing banking sector and cut the biggest budget deficit in the European Union in the face of a faltering economy and growing risks of a political crisis.

So far, it appears to be losing the argument.

Ireland’s rising borrowing costs are unsustainable over the medium term, and are putting mounting pressure on Taoiseach Brian Cowen as he heads into a new Parliamentary term today, with his coalition and deficit-cutting mandate looking shaky.

So far, £20bn of aid has been earmarked for Anglo Irish – although Standard & Poor have estimated the figure to be nearly £10bn higher.

Even £20bn would push Ireland’s 2010 budget deficit to around 25% of gross domestic product, compared with an EU limit of 3%that Dublin aims to reach by 2014.