The Celtic Tiger and the biggestbanking-property crash in world:Politics and Economics in Ireland         Oliver O’Connor ...
Irish Economy – Profile• GDP  – €156bn 2010; GNP, €128bn  – GDP (nominal) lost €33bn since 2006, huge -17%  – Bottomed out...
European GDP per capita 2010 in PPP                          EU 27 = 100Source: Eurostat
GDP per capita PPP 2010Assumed Irish GNP per capita 20% less than GDP per capita at 102   EU 27 = 100
Population Long Term Trend Up     6000                          Population of Ireland 1950-2030     5000     4000000s 3000...
What went wrong? A play in Five Parts• 1987-93 – new economics, new politics, slow  improvement• Arrival of ‘Celtic Tiger’...
Some sourcesPatrick Honohan – pre-Governor papers    http://www.tcd.ie/Economics/staff/phonohan/European CommissionNationa...
House Prices
Investment in housing
Jobs in Construction 1990-2009
Relative earnings path
Loss of Price Competitiveness
Irish Competitiveness Index
Banks boom – aided from abroadDomestic loans up by 147% in four years; reaching 210% of GNP                               ...
Irish Banks – Loans mountain
Explosive growth• ‘The domestic banking sector—made up of  those banks that had a majority exposure to  the domestic econo...
Or put another way…• “By early 2008, net foreign borrowing by Irish banks  had jumped to over 60 per cent of GDP from 10 p...
Banks – Ireland and Eurozone
Government Money: Irish 10 Yr BondSpread over German Bund 1991-2010                     Irish 10-Year Bond Spread over Ger...
Cheap money…• “real interest rates 1998-2007 averaged minus  1 per cent, compared with over 7 per cent in  the ERM period ...
But not so cheap after all….                                    With nearly                                    two-thirds ...
Fiscal policy – too loose or too dependent?                                 Honohan, 2009
Fiscal Balance 1995-2008
Correction 2002-04
Future of Government debt
Interest up but not to 1985 levels
Competitiveness Scorecard 2011                  www.competitiveness.ie/media/Forfas060911_                  Irelands_Compe...
Competitiveness Scorecard               www.competitiveness.ie/media/Forfas060911_               Irelands_Competitiveness_...
Dramatic changes in party support
Questions to discuss•   “Why didn’t someone see this coming?”•   Did euro membership cause the crash?•   Did Irish politic...
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Cambridge history presentation

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A description of what happened in Ireland's economy over 2002-09, with a focus on monetary expansion and fiscal balances

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  • Hello Declan. I'm afaid there was, particularly in the financial engine room of the Central Bank and DoF. More broadly though we have the issue of how to accommodate diversity of opinion and analysis in our institutions. There was a strong consensus then that was not much challenged or dislodged. We have to embed in our institutions the ability to ask questions about the prevailing wisdom, even if that is uncomfortable. Thanks for your comment!
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  • Excellent analysis Oliver. There was an absence of governance in the Ahern years that beggars belief. Incompetence doesn't even begin to capture the magnitude of the dereliction of duty.
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Cambridge history presentation

  1. 1. The Celtic Tiger and the biggestbanking-property crash in world:Politics and Economics in Ireland Oliver O’Connor 12 March 2012
  2. 2. Irish Economy – Profile• GDP – €156bn 2010; GNP, €128bn – GDP (nominal) lost €33bn since 2006, huge -17% – Bottomed out: growth now 1% - 3% by 2015? – Ireland is relatively wealthy, even after the crash – GDP per capita €34.6bn, GNP per capita €28.4bn – Compares well internationally
  3. 3. European GDP per capita 2010 in PPP EU 27 = 100Source: Eurostat
  4. 4. GDP per capita PPP 2010Assumed Irish GNP per capita 20% less than GDP per capita at 102 EU 27 = 100
  5. 5. Population Long Term Trend Up 6000 Population of Ireland 1950-2030 5000 4000000s 3000 Actual Forecast 2000 1000 0 1950 1960 1970 1980 1990 2000 2010 2020 2030 Source: OECD
  6. 6. What went wrong? A play in Five Parts• 1987-93 – new economics, new politics, slow improvement• Arrival of ‘Celtic Tiger’ 1994-2000/01• 2001-04: slowdown, dot com crash• 2004-08: ‘Boom becomes boomier’; loadsamoney• 2008-10: Masssive crash, international crisis and EU-IMF bailout
  7. 7. Some sourcesPatrick Honohan – pre-Governor papers http://www.tcd.ie/Economics/staff/phonohan/European CommissionNational Competitiveness Council www.ncc.ieNational Treasury Management AgencyPost crash reports: Governor Honohan Regling Watson NybergOn-going Irisheconomy.ie Karl Whelan; Kevin O’Rourke; Philip Lane; Colm McCarthy
  8. 8. House Prices
  9. 9. Investment in housing
  10. 10. Jobs in Construction 1990-2009
  11. 11. Relative earnings path
  12. 12. Loss of Price Competitiveness
  13. 13. Irish Competitiveness Index
  14. 14. Banks boom – aided from abroadDomestic loans up by 147% in four years; reaching 210% of GNP Domestic deposits up 70% Shortfall of €176bn, financed externally in euro
  15. 15. Irish Banks – Loans mountain
  16. 16. Explosive growth• ‘The domestic banking sector—made up of those banks that had a majority exposure to the domestic economy— had, nevertheless, quadrupled its size in the six years from 2003 to 2009, having grown from €200 billion to €800 billion’ Gary O’Callaghan, Dubrovnik International University
  17. 17. Or put another way…• “By early 2008, net foreign borrowing by Irish banks had jumped to over 60 per cent of GDP from 10 per cent in 2003.• “Up to 2003, the property boom was financed without significant recourse to foreign borrowing, but after then the banks started to borrow heavily from abroad.• “This was an effortless undertaking thanks to the removal of currency risk and went essentially unnoticed by analysts, the focus of policy attention having shifted away entirely from balance of payments concerns. “ – Honohan, 2009
  18. 18. Banks – Ireland and Eurozone
  19. 19. Government Money: Irish 10 Yr BondSpread over German Bund 1991-2010 Irish 10-Year Bond Spread over Germany since 1991 450 400 EMU EMU 350 300 250Basis Points 200 150 100 50 0 -50 Source: NTMA
  20. 20. Cheap money…• “real interest rates 1998-2007 averaged minus 1 per cent, compared with over 7 per cent in the ERM period (even excluding the crisis of 1992-3) and 3¾ in the floating rate period between the two. The fall in nominal interest rates was even steeper. “ – Honohan 2009
  21. 21. But not so cheap after all…. With nearly two-thirds of that cost for Ireland coming from one bank alone, Anglo Irish Sourced by NCB Stockbrokers
  22. 22. Fiscal policy – too loose or too dependent? Honohan, 2009
  23. 23. Fiscal Balance 1995-2008
  24. 24. Correction 2002-04
  25. 25. Future of Government debt
  26. 26. Interest up but not to 1985 levels
  27. 27. Competitiveness Scorecard 2011 www.competitiveness.ie/media/Forfas060911_ Irelands_Competitiveness_Scorecard_Presentat ion.pdf
  28. 28. Competitiveness Scorecard www.competitiveness.ie/media/Forfas060911_ Irelands_Competitiveness_Scorecard_Presentat ion.pdf
  29. 29. Dramatic changes in party support
  30. 30. Questions to discuss• “Why didn’t someone see this coming?”• Did euro membership cause the crash?• Did Irish politics cause it?• Did Irish public administration fail?• What would have prevented it?• Has euro membership made solving it harder?• After the crash, what’s the economic future?• What’s the political future?

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