Ireland’s Comeback

If there was an award for “comeback nation of the year,” Ireland would be a leading candidate to take the prize for 2013.

The Dublin government announced last week that it will soon end its reliance on the bailout loans that got Ireland through the worst of the sovereign debt crisis. Though some observers thought Ireland would seek a precautionary credit line – think of it as financial independence with training wheels – Irish officials said that after consulting some of their eurozone partners (particularly Germany), they feel confident that their nation can keep its balance without outside support.

As Ireland regains its economic sovereignty, it is worth comparing the country with other nations that have needed substantial help from the international community. Argentina has repeatedly shorted its creditors, most recently in the fallout from the country’s massive default in 2001. Some of Argentina’s creditors, who refused to take the roughly 30 cents on the dollar it offered them, continue to fight in court for what they are owed. Iceland, meanwhile, first tried to stiff foreign depositors in its previously overstuffed banks, and then trapped non-Icelandic investments in the country using exchange controls. Meanwhile, the ongoing troubles in Ireland’s similarly beleaguered eurozone partners – Portugal, Cyprus, Spain and especially Greece – are well-known.

The Irish endured several years of harsh austerity as they rebuilt their national finances. Irish citizens, by and large, did not look to their government as the employer of first and last resort. Nor did Ireland try to tell the world that trusting the Irish banking system was foolish, and that any losses from doing so were investors’ own fault.

In fact, Ireland’s problems arose mainly because the Dublin government made a well-intentioned but hasty pledge to stand fully behind Ireland’s banks just as the housing bubble burst. Ireland said when it made the pledge that guaranteeing its banks’ liabilities was affordable, but the policy ended up bringing the country to the edge of bankruptcy. As it was, Ireland had to accept international help in 2010, taking loans from the European Union and the International Monetary Fund.

But like responsible borrowers everywhere, Ireland has positioned itself to get a second chance. The country is about to emerge from its bailout and re-enter the global credit markets as a borrower in good standing, with its financial house in order and its economy about as strong as can be expected in the slow-growth eurozone. Ireland originally fell because of its choice to back its banks, not because of longstanding government overspending and fudging the books (as was the case in Greece). This difference is enough to make many investors more optimistic about Ireland in the long term.

“Taking a precautionary credit line was more psychological than financial. Ireland’s decision seems to have been very well accepted by the market,” Moody’s Kristin Lindow said, according to Reuters. Ireland is slated to announce a new medium-term economic strategy next month, another key step in rebuilding investor trust. For now, investors mostly seem willing to give Ireland the benefit of the doubt.

Ireland may lead the way as Europe slowly tries to move forward after several years of simply trying not to slide back. Spain followed Ireland in announcing its exit from its own bailout program, also without an emergency credit line. It remains to be seen if Ireland’s path will eventually lead the way for Portugal and Greece as well. Even Greece, the poster child for national financial mismanagement, reported last week that it is on a path to a balanced budget.

Welcome back to the fold of financially responsible countries, Ireland. One day, maybe the United States will join you there.

About Larry M. Elkin 553 Articles

Affiliation: Palisades Hudson Financial Group

Larry M. Elkin, CPA, CFP®, has provided personal financial and tax counseling to a sophisticated client base since 1986. After six years with Arthur Andersen, where he was a senior manager for personal financial planning and family wealth planning, he founded his own firm in Hastings on Hudson, New York in 1992. That firm grew steadily and became the Palisades Hudson organization, which moved to Scarsdale, New York in 2002. The firm expanded to Fort Lauderdale, Florida, in 2005, and to Atlanta, Georgia, in 2008.

Larry received his B.A. in journalism from the University of Montana in 1978, and his M.B.A. in accounting from New York University in 1986. Larry was a reporter and editor for The Associated Press from 1978 to 1986. He covered government, business and legal affairs for the wire service, with assignments in Helena, Montana; Albany, New York; Washington, D.C.; and New York City’s federal courts in Brooklyn and Manhattan.

Larry established the organization’s investment advisory business, which now manages more than $800 million, in 1997. As president of Palisades Hudson, Larry maintains individual professional relationships with many of the firm’s clients, who reside in more than 25 states from Maine to California as well as in several foreign countries. He is the author of Financial Self-Defense for Unmarried Couples (Currency Doubleday, 1995), which was the first comprehensive financial planning guide for unmarried couples. He also is the editor and publisher of Sentinel, a quarterly newsletter on personal financial planning.

Larry has written many Sentinel articles, including several that anticipated future events. In “The Economic Case Against Tobacco Stocks” (February 1995), he forecast that litigation losses would eventually undermine cigarette manufacturers’ financial position. He concluded in “Is This the Beginning Of The End?” (May 1998) that there was a better-than-even chance that estate taxes would be repealed by 2010, three years before Congress enacted legislation to repeal the tax in 2010. In “IRS Takes A Shot At Split-Dollar Life” (June 1996), Larry predicted that the IRS would be able to treat split dollar arrangements as below-market loans, which came to pass with new rules issued by the Service in 2001 and 2002.

More recently, Larry has addressed the causes and consequences of the “Panic of 2008″ in his Sentinel articles. In “Have We Learned Our Lending Lesson At Last” (October 2007) and “Mortgage Lending Lessons Remain Unlearned” (October 2008), Larry questioned whether or not America has learned any lessons from the savings and loan crisis of the 1980s. In addition, he offered some practical changes that should have been made to amend the situation. In “Take Advantage Of The Panic Of 2008” (January 2009), Larry offered ways to capitalize on the wealth of opportunity that the panic presented.

Larry served as president of the Estate Planning Council of New York City, Inc., in 2005-2006. In 2009 the Council presented Larry with its first-ever Lifetime Achievement Award, citing his service to the organization and “his tireless efforts in promoting our industry by word and by personal example as a consummate estate planning professional.” He is regularly interviewed by national and regional publications, and has made nearly 100 radio and television appearances.

Visit: Palisades Hudson

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