How successful have the Irish Government and the European Central Bank Essay

How successful have the Irish Government and the European Central Bank been in running the Irish economy over the last two years - Essay Example Ever country’s economic policy has a number of generic objectives like attaining economic growth, healthy levels of employment and inflation, increasing price stability and equilibrium on the balance of payments. To this end governments use tools of macro-economic policy, like fiscal, monetary and exchange rate policies (Palmer, n.d). The Irish economy is member of the European Union and controlled by the European Central Bank (ECB) and thus does not have perfect autonomy when it comes to making its economic policy. The ECB has a vested interest in the Euro remaining integrated across Europe and thus the interest rates implemented across all the members of the European Union have a greater agenda than that country’s economy; to keep the Euro healthy. By setting monetary policy and exchange rate, the ECB makes sure that there is price stability. However, since policies are implemented under an umbrella, sometimes decisions of the ECB for the European Union’s greater good may prove to be detrimental for a particular economy which is precisely what happened with Ireland (Palmer, n.d). The Irish crisis hit full swing in 2008 when Lehman Brothers collapsed. Their financial sector was weak and out in the open and vulnerability was high. Ireland found it particularly hard to recover from its substantial overseas debt. Fearing a contagion, the government introduced a blanket liability guarantee; however this back fired severely, destroying Ireland’s credit image and creating political tension for Ireland. (Connor et al., 2010). However, after going through a really bad time, the Irish economy finally showed positive signs in 2010, it was expected that with recovery the economy would gain full strength. The unemployment figures also rose substantially around this time, but subsequently normalized. In the second half of 2010, the Irish government took a large loan from its fellow members of the EU which was aimed at increasing growth and improving the financial system. The new policy saw strong implementation, after the first two quarters a lot of improvement was seen. The policy objectives also aimed at improving employment in economy and improving Ireland’s competitiveness in the global market. Deflation in Ireland finally started lifting off in 2011, prices began rising as factors that had been depressing them were alleviated by the new policy implementation. A jobs initiative was also put forward around the same time with the aim of creating over 20,000 jobs. The economy of Ireland finally recovered in a plan which is divided in five stages. Stage one; export led growth, this is where net exports were increased so that competitiveness would increase. Net exports had increased over 9% by 2010. Stage two; investment, increasing FDI in Ireland helped create demand for it in the world market. Stage three, employment increment, expansion in this area occurs as a joint effect by first two stages. Stage four; improved spending, increase disposable income and consequently spending of households are increased. Stage five; make demand for d omestic goods stronger, this will cause increase in tax collections and economic growth will pick up. (Hickey, 2011). As part of the fixing up of Ireland through the new policy, the government also strengthened the capital base of its domestic banks. This was thought of to have strengthened that sector and eventually Ireland’s financial institutions and markets. (Langedijk, 2011). Summing up, we look at where Ireland stands in 2012 to see whether the policy objectives and vision of the Irish government with respect to its economy have been able to be successful over the last two years. According to this report published by the Department of finance