Flying blind in the Irish recession

We got the perfect example of what's wrong with the Irish economy last week when our air traffic controllers went on strike.

The four-hour stoppage last Wednesday shut down our three main airports, grounding 150 flights. Over 20,000 passengers were affected, with missed connections, screwed up holidays, appointments abroad that could not be kept and so on.

The disruption, irritation, even misery caused to so many people -- Irish and foreign -- was considerable. But the damage done to our international reputation, especially among the business community, was perhaps even more serious. Why would anyone come here to set up a business if the air link cannot be relied on?

Since we're an island nation we are more dependent than most countries on air transport. It's a vital link, essential for everyday life and for business. So it's not something that should be interrupted in a cavalier fashion by a small group of privileged workers.

Yet that's what happened last week. The level of disregard for ordinary people and for the economy, especially in our present circumstances, was shocking.

So if the air traffic controllers felt justified in taking such action they must have a very serious grievance, right?

Well, no actually. What is bothering them is their pay (even though they are already among the highest paid air traffic controllers in the world) and their pensions (even though they already have what is probably the best air traffic controllers’ pension scheme in the world).

They are due a 6% pay rise under their last pay agreement and they are insisting on getting that, even though most workers in the Irish economy have had to forget about agreed increases, and many have had to take pay cuts to save their jobs.

One might have some sympathy for our air traffic controllers if they were badly paid by international standards. But that is not the case. Irish controllers earn far more than their counterparts in the U.S., the U.K. and most European countries.

The top 10% of Irish controllers earn between €170,000 and €230,000 a year. The average Irish controller earns €160,000.

The average pay for controllers in the U.S. last year, excluding overtime, was $109,000 (€77,000) which is half what the tin pushers in Ireland get. In the U.K., the average pay for controllers is even lower, at £60,000 (€69,000).

So it's fair to say that the 300 Irish air traffic controllers are very well paid indeed, without the extra 6% they are demanding.

It gets even more ridiculous when you look at the generous, guaranteed pension scheme they have as semi-state workers. It's non-contributory, which means it doesn't cost them anything.
But it does cost the Irish Aviation Authority (the IAA, which runs the airports here for the state) plenty. In fact the IAA pays the equivalent of 30% of every controller's salary into their pension fund every year.

For most workers in the economy, guaranteed pensions have collapsed, even after paying heavy pensions dues over the years. Yet these guys (and gals) have guaranteed generous pensions for life, for free!

The IAA wants them to start making a contribution to the pension fund (even a modest one, like other state workers recently) but they are resisting.

So this stoppage was all about money, even though these privileged, highly-paid, semi-state workers already are doing extremely well.

The spark that caused the stoppage last Wednesday was the introduction of a new air traffic controller computer program to update the service for Irish airports and make the air traffic operation more efficient. Not without our 6% pay rise, said the controllers, and they refused to operate the system. The IAA suspended 14 of them, and the rest went on strike for four hours in sympathy.

Further stoppages were threatened, but these have new been put off following the start this week of Labor Court talks between the IAA and the controllers.

In the meantime, unnerved by the public outrage against them last week, the controllers are reluctantly operating the new system. Meanwhile, we all wait to see whether the talks will prevent further stoppages and how much the controllers will get.

In most businesses I know, particularly in these difficult times, workers are eager to get their hands on new technology, new processes and new computer programs which will make them more efficient and therefore protect their jobs. They don't demand extra payments for working the new stuff. They just get on with it.

But the air traffic controllers (and many other state or semi-state workers) are different. Efficiency doesn't matter because their factory does not close down if someone else is more efficient.

Not only that, but in the case of the controllers they are a monopoly. So they have the state -- and the rest of us on this island -- by the throat. That's why they get paid so much for work that, no matter how difficult John Cusack made it look in the movie Pushing Tin, is not nearly as complicated as they like to make out.

That kind of greedy, opportunistic, cynical attitude should have no place in Ireland today, given the challenges we face. But as I said at the start, this strike by our controllers is the perfect example of what's wrong here.

There is a disconnect between large groups of state workers here and the reality that workers in the private sector of the Irish economy now face every day. Private sector workers shape up and take pay cuts to survive.

Too many state workers in Ireland are overpaid, inefficient and ready to strike at the drop of a hat and screw up the country if anyone tries to upset their cozy arrangements.

Unfortunately, the air traffic controllers are not the only state workers who are getting ready to throw out the baby with the bath water. On Monday of this week workers across many areas of the state services -- civil servants in various government departments, nurses, teachers, prison staff etc. -- started a work-to-rule in protest against the modest cuts in their pay announced in the recent budget.

With reduced tax revenue due to the recession we can no longer pay state workers here the high salaries they negotiated during the boom. The government has to reduce the budget deficit or the country will go bust, and a large part of state spending is on pay for state workers. So there has to be cuts.

The pay cuts announced in the budget in December amounted to around one billion euro. In a desperate attempt to avoid these pay cuts, the unions offered to make up most of this by taking extra days off without pay.

This would be made possible by increased productivity, they said. They promised a "transformation program" for the way state services are delivered, aimed at big increases in efficiency saving huge amounts of money.

The government was skeptical, no deal was done and the pay cuts went ahead. And now the unions are saying that the "transformation" they offered, to improve efficiency, is off the table.
But what the rest of the workers in the economy want to know is why? In the private sector, increasing efficiency on a regular basis is accepted as essential in the battle to increase Ireland's competitiveness.

The state workers have admitted that they could be much more efficient, but now say they are not willing to co-operate with any transformation program. What part of WE CAN’T AFFORD IT do they not understand?

Before all this is over, we're going to be a very divided country, split between those on the state payroll and those in private industry. The airwaves were full of angry callers on Monday denouncing the public service workers and their work-to-rule.

The general view is that they are well paid, have cushy permanent jobs, with fantastic guaranteed pensions and that they should wake up to reality and share the pain being felt by everyone else.

Several commentators here remember what Ronald Reagan did some years back when he took on the air traffic controllers in the U.S., fired them and then rehired them at reasonable pay rates. A lot of people feel that the same strategy should be used here, if they strike again.

Apart from sorting out that particular problem, it would send a message to the rest of the state sector at the same time.

Ireland, the country of empty ghost houses

Time was in Ireland when we used to bring tourists to stay in haunted castles. These days we have haunted houses of a different kind, so-called ghost estates on the outskirts of many towns around Ireland. And they're not the kind of places that tourists would want to stay in.

The new ghost estates don't actually have ghosts. They're called ghost estates because they're empty.

They are the many developments of houses and apartments built during the construction boom here which now can't be sold. And they seem to be everywhere.

They vary in size from a few dozen houses to big estates with hundreds of units, but they all have the same look of abandonment, with unsold units, half finished units, estate roads that end suddenly in dirt tracks, and piles of rubble left behind when the builder went bust.

In many of them just a few units have been sold and the residents exist in a kind of zombie land, where they often have whole streets to themselves and the only life is the weeds growing up through the unfinished pavements.

At night they have an eerie atmosphere and little lighting. It's no wonder people call them ghost estates.

They're haunted all right -- haunted by the ghost of the Celtic Tiger.

I was at a funeral last week in Deansgrange Cemetery on the Southside of Dublin. We went slowly through Leopardstown Road and later on to Sandyford, areas that used to epitomize the affluence of the Celtic Tiger, full of new apartment blocks and swish office towers with modern architectural flourishes. These are the places where people thought nothing of paying half a million for a large apartment.

We passed blocks of apartments which were almost empty, and office blocks which were completely empty and had tattered. “To Let” signs across their facades.

It was clear these apartments and offices had been unoccupied since they were built a year or two ago. And this was on the fashionable Southside of Dublin, where property once seemed like a no-brainer for the investor.

It's as bad on the unfashionable Northside of the city. A few miles in from the coast where I live is one development that typifies how crazy it got here during the boom.

A vast billion euro development of hundreds of houses and apartments, it's called Belmayne. It was launched a few years ago at the height of the property boom and attracted a lot of attention because of the sexy advertising used to suggest it was offering a sophisticated new lifestyle, in which leggy models would be draped all over your furniture.

What it actually offered was a home in a bleak area close to the M50 beltway around Dublin beside some of the most deprived housing estates on the tough Northside of the city (where there was another murder last weekend). They did sell some units -- and then the property crash kicked in.

Today just 40% of the planned 2,650 houses and apartments are occupied, even though parts of the estate were completed more than two years ago. The builder is bust and the bizarrely named Belmayne may never be finished properly.

Families who bought there have few of the facilities they were promised. Investors are letting to out of work immigrants at minimal rent.

Prices have almost halved, and everyone is deep in negative equity. It's only half finished and it's a sad, lonely place to visit.

There are smaller but similar new estates not just in Dublin, but in all the cities and many of the bigger towns around the country. The problem is particularly bad in towns within a couple of hours commuting distance from Dublin. There you find forlorn, empty estates of houses in what was farmland around these towns.

Even worse -- a real sign we went crazy -- apartment blocks were built on the edges of these sleepy towns and villages even though there was plenty of land around to build houses. Why? Because the developers could make more money from apartments, and there were enough Celtic Tiger cubs commuting from Dublin to buy them at a quarter of a million each.

Until the crash, that is. Now they are all ghost estates haunted by the ghosts of the construction bubble.

How many houses in Ireland are lying vacant? The latest figures show that there's nobody living in 18% of all the houses in the country -- almost one in five. And the problem is getting worse, as about 500 new homes per week are still being added as developers complete some estates in better areas.

These new homes in mature areas with good facilities will eventually sell. But the vast backlog of unsold units in unwanted areas in cities or remote country towns will never sell, or at least not in the foreseeable future. In some places they are thinking of knocking them and returning the land to farming.

In many commuter towns there are other problems because the local councils won't take over the estates to provide street lighting, sewage connections and other public services, until the estates have been completed in accordance with the planning permission. In many cases the builders have gone bust and residents are left in half finished estates with no services.

In some apartment developments in Dublin and other cities where a lot of the units are unsold, residents find that they are being loaded with management charges for the whole building, or that maintenance is not provided at all and their development soon starts to deteriorate.

It's a mess. And it's a mess with no solution in sight because in spite of some efforts to talk the market back into life, the reality is that the overhang of unsold units will last for four or five years, and in the meantime property prices will fall even further before they start to stabilize.

For most of us who bought our houses 10 years ago or more it's not a problem. It simply means that our pile of bricks is now worth quarter of a million instead of half a million, which is still a lot more than we paid for it.

The people who are really screwed are the younger ones who bought over the past two to four years when the bubble was at its biggest, and they paid half a million (with a mortgage) for a home that's now worth quarter of a million. These young couples work around the clock to pay their negative equity mortgages and pray they don't lose their jobs in the recession.

What all of this means is that the property market is unlikely to recover any time soon. And it's not just domestic property that has collapsed.

The commercial property market -- office blocks, shopping malls, industrial estates, hotels and so on -- has fallen just as much and has a similar overhang of unwanted and unoccupied buildings. The recession has hit commercial property hard.

It's worse here than elsewhere because during the Celtic Tiger madness we built far too much of it. Some estimates are that we have around 40% more office space than we need -- a recent survey revealed that Dublin has the highest percentage of vacant office space of 22 European cities.

And the tax driven incentives to build hotels mean that we now have an estimated 12,000 hotel rooms more than we will need even if tourism grows strongly. That's a lot of hotels we need to close down. One high profile hotel on Dublin's Southside closed a week ago, and others will go the same way.

The collapsing property market has, of course, almost wiped out the Irish banks, which had to be saved by the Irish government. It's also wiped out some of the country's biggest developers, the billionaire boys who got unimaginably rich through the construction boom, thanks to the easy credit the banks gave them.

Some of them were foolish -- or crazy -- enough to have given personal guarantees, and they now face losing everything as their former buddies in the banks turn nasty.

One of them was on the TV news here last week, a broken man admitting that he had misjudged the market and that he was now broke. He's not the only one. About half a dozen of these tycoons are in the same boat, having paid hundreds of millions at the top of the market to buy sites and build apartment blocks and housing estates that now cannot be sold.

The banks are likely to pursue them for their personal assets where they can, even though that will recoup only a fraction of the billion or so that some of them owe. Some of them could even lose their homes as well as their limos. How the mighty have fallen.

News / 300,000 houses lying empty in Ireland, including 200 'ghost estates' / Click here

News / House prices at record low in Ireland / Click here

The boom to bust decade

Greetings from the North Pole. Well, not exactly, but that's what it feels like.

For the past two weeks Ireland has been in the grip of a weather system from Siberia that has seen temperatures sink as low as minus-14 Celsius. For the past few nights, for example, it's been minus 9 or 10 across most of the country, with sleet and snow adding to the misery. And it's forecast to continue for another week at least.

We're not used to this so we don't know how to cope with it. In fact we've not really had much snow -- there's only an inch or two on the ground in most places. Yet the country has ground to a halt.

We're running out of salt and grit to make the roads passable, schools have closed for the first three days of this week, and the airports have been forced to shut several times over the past week for a few hours. And all this because of a few snow showers that would hardly be noticed in New York or Chicago.

As I said, we're not used to it (the last time we had a cold spell this bad was decades ago). So local councils here are never prepared. And the furious public have been blaming the government.

If Taoiseach (Prime Minister) Brian Cowen is feeling paranoid who could blame him? Even the weather is against him!

There was further bad news over Christmas -- on a much more serious note -- with the shocking news that the Minister for Finance Brian Lenihan has been diagnosed with cancer of the pancreas, one of the worst cancers you can get. He began chemotherapy a few days ago and has the good wishes and prayers of the whole country behind him.

Obviously this is a terrible blow for his family, but it is also a serious blow for the country since he is seen as the only politician with the requisite ability and courage to get us through the catastrophic economic mess we are in. He says he intends to continue working while undergoing treatment, but it's not going to be easy for him.

Added to all that has been the relentless recession, deeper here than in any other European country, with retail sales way down over the holiday period and unemployment numbers again rising. The very latest figures here show that one in every three males under 25 is now on welfare.

So it's been a miserable Christmas. But this being the first issue of the Irish Voice of 2010, it's time to look back beyond Christmas to review the past year and add up the national scorecard for 2009.

And yes, it's a big F -- F for Fail or Flunk or whatever you guys call it over there. It's been a year when not only the Irish economy but the Irish state came very close to total failure, to complete collapse.

This is also the start of a new decade, so it's appropriate to look back over the last decade in Ireland. In fact it's necessary to do so to see how we got ourselves into the mess that reached crisis point over the past year.

By any measure, 2009 was an extraordinary year here, and the 2000s (the noughties) were an extraordinary decade. The decade saw monumental changes, more than in any other recent decade.

I don't say that lightly. I've been working as a journalist since 1970, which is four decades ago now, and the changes we have seen in the past decade are on a different scale.

The noughties saw Ireland emerge as a place where everyone seemed to have a second home, or an apartment in Bulgaria, an SUV, a massive flat screen TV, kids in fee paying schools and a few hundred euro to spend on an average night out.

The Irish economy, once the poor man of Europe, heated up so much we were growing at 9% or 10% a year when even Germany and the U.S. could only manage 2% or 3%.

It was mad, of course, but it was a divine madness. Two or three foreign holidays a year, so what was not to like?

And as we lay in the sun we calculated how much our houses were increasing in value every year. Perfectly ordinary family homes in mature areas around Dublin were suddenly worth a million. We were all millionaires!

Everyone was swept along, from the CEOs on their million-plus salaries to the blocklayers and plumbers who would not take a job for less than a thousand a week. After tax.

It was crazy, but we did not call it that. We called it the Celtic Tiger.

I do remember writing here a couple of years back that it seemed strange that the economy was still booming even though we were losing all our manufacturing jobs to cheaper countries. I particularly remember commenting in this page about the absurdity of a property boom in which we were building thousands of new homes to sell to immigrants who were coming in here to work in construction. It was a bubble and most people knew it, yet we clung to the hope that we could keep blowing it up without it bursting.

It was a decade of greed and stupidity, and looking back now it's extremely embarrassing. We can blame the U.S. for letting Lehmans go under, we can blame the global financial collapse, we can blame the Man Above, or right now we can blame even the weather.

But there's only one place the blame needs to go, and that's right here. The reason the collapse is worse here -- much worse -- is because Ireland was more stupid and more greedy than anywhere else. And over the past year we have started to pay the price.

We will go on paying the price in 2010 and for at least another two or three years into the future because that's how far things have got out of line here and how long it will take us to readjust. There are big two problems, our lack of competitiveness and our budget deficit.

Government spending here soared during the Celtic Tiger as the boom brought in massive tax revenue. Now that our property bubble has burst and our economy has tanked, tax revenue has collapsed so that it covers just over half of government spending.

Getting that back under control meant huge cutbacks in state spending in the recent budget, and there will be similar cutbacks in the next two budgets. That impacts on state services and will be felt by everyone here as a noticeable reduction in our standard of living.

One of the problems in getting state spending back under control is the huge jump in unemployment (now up to 14% and still rising) which is putting so many people on welfare. And that is related to something else that happened here during the Celtic Tiger years -- our serious loss of competitiveness.

Pay rates and salaries soared during the boom and that fed into the cost of everything else here, from the coffee you bought on the way to work to the electricity used to power your computer or your cement mixer. We went from being a hugely attractive country for multinational companies to set up in, to one where everything was ridiculously expensive. Manufacturing, transport, the general costs of doing business here all went haywire and multinational -- and Irish -- companies reacted by shifting their plants abroad. Many of the high profile cases -- like the loss of the huge Dell plant in Limerick or the decision to manufacture "Waterford" glass in Eastern Europe -- were covered in this page.

But it wasn't just the high profile cases -- it was the ordinary manufacturing plants which closed down week after week, month after month as Ireland's manufacturing industries died. In the end we were left with a huge property bubble, which eventually burst.

Getting that competitiveness back is the biggest challenge that now faces us, both in 2010 and in the years ahead. If we can get that right, we have a chance.

If we don't, or won't, then expect to see many more young Irish where you are in the days to come. Happy New Year ... we hope.