Sigrún Davíðsdóttir's Icelog

Today, the troika – EC, ECB and the IMF – released the latest memo on the state of the Irish economy. Recovery continues, albeit slowly and the scary part is the unemployment:

Ireland’s gradual economic recovery has continued, but largely due to weaker net exports, real GDP growth has slowed to a projected rate of ½ percent in 2012. Domestic demand and employment continue to decline owing to on-going household balance sheet repair, the weak labour market, and low lending to households and SMEs. Prospects for growth in 2013 are for modest pickup to just over 1 percent as domestic demand declines moderately, although weak trading partner growth may continue to dampen net exports despite Irish competitiveness gains.

However, unemployment remains unacceptably high, especially among the youth, making job creation and growth a key priority. Accordingly, plans are progressing to utilise resources from the European Investment Bank, the National Pension Reserve Fund, and private investors to finance job-rich projects in several sectors. The Action Plan for Jobs will contribute to employment generation through a wide range of measures. It is also important to ensure that job seekers are well prepared to fill positions when they become available by strengthening employment and training services through vigorous implementation of the Pathways to Work initiative. Engagement with the long-term unemployed should be a priority, including through timely and well-designed involvement of the private sector in providing employment services.

But there are still significant issues, which need to be addressed:

The authorities are ramping up reforms to restore the health of the Irish financial sector so that it can help support economic recovery. Intensified efforts are required to deal decisively with mortgage arrears and further reduce bank operating costs. Parliament is currently considering an ambitious reform of the personal insolvency framework.

In other words, the banks aren’t lending enough to support businesses (although a return to earlier insane lending isn’t to be wished for) – and then two crucial things: mortgages arrears haven’t been dealt with nor is there an appropriate personal insolvency framework in place.

As I’ve pointed out earlier, debt relief is at the heart of the good Icelandic recovery. In addition, the insolvency framework was changed in Iceland following the collapse of the banks. The insolvency period is now only two years in Iceland and although creditors can in theory prolongue it, in practice it’s very difficult to do. Those who face insolvency can now choose to go down that path, knowing there is an end to it – it’s not an insolvency for life.

In terms of mortgages, the measures chosen were the so-called “110% way,” explained in this article, where the Icelandic situation is compared with the situation in Greece and Iceland. In November 2008 Iceland had to turn to the IMF for an emergency loan and consequently, the Fund was involved in forming policies to tackle the situation. I very much hope that the Icelandic lessons and experience of debt relief and changes in insolvency framework is now part of the IMF tool kit on other debt-ridden countries. These two actions can’t happen too quickly. They are an important factor in making the future a tiny wee brighter for those who, unaware, are struck by economical catastrophes they had very little part in creating.

Update: There are two Irish organisations working on debt relief: the Phoenix Project and Irish Mortgage Holders Organisation.

Follow me on Twitter for running updates.