Is the Dublin property boom an indicator that Ireland is over the hump?

Germany's influential Frankfurter Allgemeine daily is worrying about Dublin's property market and what it says about the health of Ireland's economy.

This week it informed its readers about the 24 per cent year-on-year rise in property prices in the capital – the highest in the EU. This spike was, depending on who you choose to believe, an encouraging sign of economic recovery or a worrying sign of another bubble, the newspaper added.

After running through Ireland’s headline economic data, the leading daily from Germany’s financial capital surmised: “Ireland is experiencing an economic upturn of the kind that the European countries plagued by stagnation and structural problems can only dream.”

Wondering aloud if the Dublin property boom was an indicator that Ireland was over the hump, the newspaper offered two answers.

The optimistic view, it said: Ireland was always a special case in the euro crisis quarantine and, unlike the southern European candidates, always had a competitive and dynamic economy. After losing its way in the early years of the last decade, it wrote, Ireland “corrected mistakes through early, deep reforms” and was now recovering to export more than it imported.

Then the big but: “Investors are at present ignoring Ireland’s considerable budget risks.” Chief among these, the FAZ noted, is how around 40 per cent of bank assistance between the years 2007 and 2011 went to Ireland – “an economic dwarf with a population and economic performance smaller than Hesse” – the federal state where the FAZ is published.

The resulting debt mountain hasn’t gone away, it stated, and Ireland’s debt-to-GDP ratio of 124 per cent remains one of the EU’s highest. Meanwhile Dublin, it noted, is rolling back on reforms, including a “step-by-step reversing” of some salary cutbacks for civil servants.

Two threats loom on Ireland’s horizon, it said. First, a euro zone slide into recession would hit the export-driven economic recovery.

Second, the country could be knocked for six when the true situation of Ireland’s banks is revealed in upcoming ECB stress test results.