Irish economic crisis paper-11538777

Michael Reynolds-11538777
Choose one financial crisis associated with a particular country and produce a research
paper based on your work. The paper should be a critical review of a particular crisis and
may focus on the causes, responses, consequences of such a crisis and the political
economic policies associated with it:
Examine the preceding causes of the economic crisis that unfolded in Ireland in 2008 and
the government responses to it. Assess the subsequent political and economic
consequences of the crash.
Following the international financial crisis in 2008 the Irish economy suffered through one of
the most severe economic contractions in the Western world. Ireland as a country has been
no stranger to recessions, the country experienced decades of economic stagnation
following the country’s independence in 1922. However even by Irish standards the 2008
crisis would go on to become one of the most severe and prolonged recessions not seen
since the second world war. The “Celtic Tiger” miracle economy that had roared through
the 1990s and early 2000s resulted in unprecedented levels of economic growth and
prosperity. This left many commentators and experts of the view that the country would
experience a “soft landing” should any International recession occur. These inaccurate
predictions by the overwhelming majority of economic commentators, politicians,
International institutions as well as media reports would prove to be fatal following the
onslaught of the global recession and banking crisis of 2008. In this paper I will examine the
background to the Celtic Tiger economic boom of the 1990s and 2000s and the subsequent
causes of the Irish economy’s crash. The primary causes of the Irish recession were
domestically created by the huge erosion of the tax base and the inflating of a property
bubble as well as a generally reckless fiscal policy pursued by the government. Contributory
factors to these causes of the crash here were several external factors such as Ireland’s
entry to the economic monetary union and the global downturn itself which affected
Irelands export based domestic economy due to the exceptionally large contribution these
exports make to the State’s GDP. Following this I will assess the responses to the crisis that
were pursued by the government of the day such as the blanket guarantee scheme of
September 2008, the establishment of NAMA and the fiscal consolidation subsequent to the
crash. From this I will look at the dramatic consequences the crash had on the country, the
most significant being the loss of the country’s economic sovereignty following the
intervention of the troika in November 2010. In closing I will assess the country’s position
going forward having successfully emerged from the EU-IMF bailout and the recently
improving economic conditions for the country.
The Irish economy from the early 1990s through to the mid-2000s experienced an economic
boom which by any standards was extraordinary. 1
The Irish economy was among the best
performing economies on the globe in the 1990s, this was especially significant given the
1
(Honohan, P. page 2)

period of economic instability that preceded it in the 1980s. 2
This decade was a period
plagued by high unemployment, massive emigration, disproportionately high income tax
rates and a bloated national debt as a result of years of government deficits. Indeed by the
mid-1980s, 3
the public debt-GDP ratio was over 110 percent and the country was paying out
approximately 10 percent of GDP in interest payments on this debt annually. From 1987 a
combination of fiscal rectitude, increased labour competitiveness which attracted inward
investment from multi-national corporations as well as external assistance from the EU to
help invest in the country’s infrastructure, all contributed in sowing the seeds for the Celtic
tiger economic miracle. The subsequent economic boom had two phases. 4
The export led
boom based on labour competitiveness from the late 1980s to early 2000s and the
construction led boom from the turn of the millennium to the 2008 crisis.
5
The export led boom of the 1990s driven by a favourable corporation tax rate, improved
labour productivity as well as enhanced internationally credibility overall would result in
Ireland catching up with the other advanced economies in Europe. 6
From 1987 to 2007
economic growth averaged at 6.3 per cent annually, while the unemployment rate dropped
from a staggering 16 per cent in 1994 to just over 4 per cent by the year 2000, over the
same period from 1994 to 2000 GDP grew annually at 8.3 percent. For the first time,
Ireland’s economy had full employment and Ireland’s public finances remained in a healthy
position for the first phase of the boom. This first export based boom would last for most of
the 1990s, however once this competitiveness based boom began to slow down Irelands
economy continued to grow at a rapid rate. 7
The convergence in to the second phase of the
boom occurred around the turn of the millennium whereby a construction boom occurred
right up to the crash in 2008. Despite much criticism of this housing boom in recent years,
there were strong factors which meant an increase in construction was fundamentally
inevitable at the turn of the century. 8
There was after all a rapidly growing population due
to a fall in emigration for the first time in decades as well as an unprecedented increase in
inward migration.
The construction bubble began to inflate to unsustainable levels as a result of a variety of
factors. At the end of the 1990s Irish banks lending was subject to the level of bank deposits
2
3
(Whelan, K. page 2)
4
5
(Mac Sharry, R. White, P. page 362/363)
6
(Whelan, K. page 3)
7
(O’Toole, F. page 21)
8
(Whelan, K. page 7)

each bank had, in other words the Banks could not lend without an adequate deposit base.
9
Ireland’s banks’ lending to the non-financial private sector was a modest 60 percent of GNP
in 1997, this was about a quarter less than the Eurozone average. 10
Indeed Irish mortgage
interest rates at this time were generally 10 percent or above while in the same period the
average first time buyer in Ireland took out a mortgage roughly equal to three years average
gross earnings. 11
By 2008 non-financial lending had risen to over 200 percent of GNP, while
house prices had ballooned to over eight times the average Irish income and an astounding
17 times of average earnings for first time buyers in Dublin.12
This increase in house prices
was the result of a property bubble that was overheating so much so that completion of
new housing units dwarfed from 30,000 units in 1995 to over 80,000 in 2007, this was
almost half the level of new completions in Britain. 13
The key reason as to why the bubble
grew so rapidly was Ireland’s entry to the European Monetary Union in 1999 which allowed
Irish banks and financial institutions to borrow from International markets at a substantially
lower rate than before. This facilitated the Irish banks to lend more without the need for a
strong deposit base. 14
By the year 2008 Irish banks were lending 75 percent more in
mortgages and 40 percent more to developers, Overall Bank lending more than tripled in
the eight year period from 2000 to 2008. 15
The result of these lending practices was a
massive increase in mortgage lending at lower rates than ever before which encouraged
more people to purchase property, this acted in a tangent with increasing house prices
which put mounting pressure on people to get on the property ladder sooner rather than
later. Continually rising demand and a dramatic increase in lending by the Irish banks were
therefore the primary reason for the evolution of the property bubble here.
16
An appropriate response to the growing bubble here would have been a rise in interest
rates by the Central Bank, As this policy lever was not available other corrective measures
through government fiscal policy and a more robust regulatory response could have
prevented the overheating of the property market. 17
As early as 2001 international bodies
9
(Kelly, M. page 2)
10
(Kelly, M. page2)
11
(Kelly, M.page 2)
12
(Kelly, M. page 2)
13
14
(Kelly, M. page 4)
15
16
(Avellaneda, S. Hardiman, N. page page 5)
17
(Avellaneda, S. Hardiman, N. page 6)

such as the ECB, OECD and the IMF became apprehensive of the Irish governments pro-
cyclical budgets and fiscal policy in general. 18
The government however did not pay much
heed to these criticisms and a laissez faire regulatory approach as well as inflationary
budgets continued right up to the crash in 2008. 19
The strong domestic consensus prevailed
that there would be a “soft landing” for the property bubble here. A direct consequence of
this prevailing mentality at government level was the erosion of the tax base here.20
The tax
take composition for the department of finance was radically altered from income tax being
the largest percentage of the tax take to other forms of taxation such as corporation tax,
stamp duty, VAT and other taxes becoming the largest component of the tax base.21
Large
income tax cuts were implemented in parallel with massive capital and current expenditure
increases with the result being that it made the Fianna Fail government extremely popular
among the electorate, by 2007 the party had won its third consecutive election since 1997
securing 77 seats in Dail Eireann.22
It can therefore with some merit be argued that these
fiscal expansionary budget policies at a time of already high levels of growth in the economy
were done in the pursuit of electoral gain and political power by the Fianna Fail led
government. It must however be noted to the governments credit that not all its economic
policies were reckless, 23
indeed from 1997 to 2006 the government maintained an average
budget surplus, 24
while also reducing the national debt from 34% of GDP in 2000 to 25% by
2007. Along with this the government set up the National Pension Reserve Fund which at its
height accumulated 25 billion euros in funds, roughly 20 percent of GDP for future public
sector pension payments. Though the vast majority of this fund would go on to become part
of the Troika bailout fund in 2010 it was still nonetheless a prudent economic policy decision
that among other academics earned praise from the distinguished economist Patrick
Honohan whom described it as “the most important initiative in economic policy for the
past decade” upon its inception in 2001. It is also worth noting that the main opposition
parties, Fine Gael and Labour at this time did little to oppose the prevailing consensus of a
“soft landing” for the Irish property bubble. The main opposition to budgets at this time by
the two parties was that the government at the time was not spending enough as opposed
to spending too much.25
In their 2007 pre-election manifestos both Fine Gael and Labour
based there budgetary proposals on annual growth averaging 4.5% over the lifetime of the
next government term. It would be an election that these parties would be glad they lost as
18
19
(Ross, S. page 171)
20
21
22
23
24
(Whelan, K. page 1)
25
(Whelan, K. page 8)

the International crisis gripped the country within a year of Fianna Fails re-election to
government.
26
A year following the 2007 election, Taoiseach Bertie Ahern announced that he would be
stepping down as leader of Fianna Fail and of the FF/Green party coalition government. It
was becoming apparent early in 2008 that the economic projections for which the
government had based its election promises on could no longer be met. 27
Serious problems
were mounting in the economy with a huge slowdown of construction in 2008, drops in the
main Irish Bank share prices after St. Patrick’s Day of that year and a mounting fiscal deficit
in the public finances. 28
On May 7th Brian Cowen replaced Ahern as Taoiseach while Brian
Lenihan replaced Cowen as minister for finance. 29
Shortly after assuming office the new
Finance minister remarked that “he had the misfortune to of become minister for finance a
few weeks ago as the building boom was coming to a shuddering halt”. The finance minister
realised that the severe shortfall in tax revenue would require an immediate response, 30
on
July 8th he announced a series of measures to achieve immediate savings of 440 million euro
to the exchequer. This would be the government’s first official response to the unfolding
crisis and the first of five austerity budgets over the course of the governments remaining
days in office. By now Irelands fiscal position it had become apparent was based largely on
the health of the now collapsing property sector.
As unemployment rates increased due to the slowdown in the construction sector and the
budget deficit widened from a fall in tax revenues, the Irish banks also began experiencing
liquidity problems. 31
By September the banks were in severe difficulty, following the
collapse of Lehman Brothers in the United States on September 15th the six main lending
institutions were on the edge of a cliff. 32
An international credit crunch combined with the
Irish banks large loan books to property based investments left them extremely vulnerable
to the crisis. 33
The first government response to the escalating problem in the Irish financial
sector was the expansion of a deposit guarantee scheme on September 20th which
increased the government guarantee to all deposits in the six main banks from 20,000 euro
which had already been in place up to 100,000 euro. This expanded deposit protection
scheme however did little to alleviate the deteriorating situation in the country’s banks.
34
Nine days later on September 29th the Irish stock market experienced it’s biggest ever one
26
(Whelan, N. page 333)
27
(Cooper, M. page 187)
28
29
(Herbert, C. page 48. (Brian Lenihan in calm and crisis))
30
(Herbert, C. page 49)
31
(McWilliams, D. page 21)
32
(Carswell, S. page 210)
33
34
(Ross, S. page 212)

day fall in share prices. The Irish banks were now effectively squeezed from all short term
liquidity and faced a very real prospect of total collapse. The two most exposed institutions
to the crisis were Anglo Irish Bank and Irish Nationwide, this was due to their massive loan
books to property developers and it was feared that if these two institutions collapsed it
would lead to a systemic bank failure. 35
The banks along with the financial regulator Patrick
Neary and the governor of the Central Bank John Hurley strongly urged the government to
introduce a blanket guarantee to protect the Banking system from collapsing. Along with
this according to finance minister Brian Lenihan, the president of the European Central Bank
Jean Claude Trichet phoned the minister and pressed him to “save your banks at all costs”
on September 28th.
36
Two days later, on the morning of September 30th the government announced that it
would guarantee all deposits, debts and liabilities amounting to 440 billion euro of the
country’s six domestically owned financial institutions. 37
These being AIB, Bank of Ireland,
Permanent TSB, Anglo Irish Bank, EBS building society and Irish Nationwide.38
The guarantee
was based on the Swedish response to a similar banking crisis that stemmed from a
property crash there in 1992 and the sole aim of the emergency measure initially was to
help the Irish institutions retain and attract new funding. 39
The measure was supported by
both the government parties as well as the Fine Gael and Sinn Fein parties when the
legislation was brought to the Dail, while the Labour party remained opposed to the
measure. In time it would soon be realised that the Banks had not faced a mere liquidity
problem but that the Banking sector had in effect become insolvent by September 2008. As
well as the initial overwhelming political support for the guarantee domestically, 40
the
government also sought professional financial advice from Merrill Lynch whom estimated
that the worst case cost of bailing out the Banks would be 16.4 billion euros. This estimate
would go on to be 48 billion euro less than the eventual 64 billion euro that the government
pumped in to the banks through recapitalisation to keep the system afloat. The government
at this time was stuck between a rock and a hard place, a possible bank failure or
underwriting unknown losses. In this instance it went for the latter, had Ireland not been in
the Monetary Union, the government could in retrospect have defaulted on certain debt,
burned certain bondholders and allowed institutions not of systemic importance to be
closed down. Indeed in Irelands subsequent bailout talks with the Troika in late 2010, Brian
Lenihan pressed for bondholders to share some of the financial burden but was overruled
by the ECB who categorically ruled out any haircuts for bondholders. Once the guarantee
was signed therefore the governments options became extremely limited, the ECB
35
(Ross, S. page
36
37
(Whelan, K. page 13)
38
(McWilliams, D. page 22)
39
(Leahy, P. page 72)
40

categorically would not allow any burning of bondholders, default on debt, or allow any
bank to go under. 41
The banking sectors huge dependence on ECB short term liquidity
funding over the next three years of the crisis meant that if the government defied the ECB
on any of these policies, Ireland faced the immediate withdrawal of liquidity funding from
the ECB, the collapse of the Banking system as a result of this as well as the possibility of
being kicked out of the euro entirely. Consequently neither the Fianna Fail led government
or the Fine Gael/Labour coalition government was willing to in any way defy the ECB in this
respect and the bank guarantee would go on to become one of the most infamous political
decisions in the State’s history.
Following the guarantee in September 2008, the government realised it would have to reign
in on the widening fiscal deficit that was occurring in the public finances. 42
The budget for
2009 was brought forward from December to the 14th of October. As opposed to its hesitant
response to the Banking crisis, the government moved quickly and decisively to address the
looming fiscal problems. The minister for finance stated in his opening speech that “we face
the most challenging fiscal and economic position in a generation”. Lenihans drive for fiscal
rectitude was not driven by an austerity ideology, it was simply a matter of economic
feasibility. 43
It had quickly become apparent that without fiscal adjustments, Ireland was
heading for annual deficits of over 20 percent of GDP, a simply unsustainable level for any
country large or small. 44
For 2008 alone exchequer returns showed an astonishing 8 billion
euro drop in tax receipts from a year previous. The result was that unlike other countries
facing the global recession at this time there was absolutely no room for any form of fiscal
stimulus to counteract the downturn. 45
The October budget would raise 2 billion euro
through tax revenues and spending adjustments to counteract the ballooning deficit, the
first budgetary step out of several. Lenihan realised he would have to address the erosion of
the tax base that had occurred in the boom times after several giveaway budgets by his
predecessors, while also cut back heavily on spending. It was politically unpalatable but
none the less absolutely necessary for the States future economic viability.
Following the October budget, the first austerity budget in decades the Irish banks solvency
problems became more exposed.46
In December the government announced its first
injection of public money in to the Banks, 2 billion euro in to AIB and Bank of Ireland and 1.5
billion in to Anglo. 47
Early in to the New Year revelations of wrong doing in Anglo Irish Bank
led to the resignation of CEO David Drumm and Chairman Sean Fitzpatrick. Following these
41
(Leahy, P. page 50)
42
(Ross, S.page 206)
43
(Honohan, P. page 72 (Brian Lenihan in calm and crisis)))
44
(Brian Lenihan budget 2009 speech: part 4, The Financial Context)
45
((Honohan, P. page 72 (Brian Lenihan in calm and crisis))
46
(Ross, S. page 203)
47

high profile resignations the bank was nationalised in January 2009. Further bank
recapitalisations were needed for each of the country’s banks in 2009 and the government
realised it needed a broader solution to repair the banks’ balance sheets. 48
The next phase
of the government’s response to the Banking crisis was to establish a bad bank known as
the National Asset Management Agency (NAMA) in an attempt to fix the banks’ balance
sheets and restore credit to the domestic economy.49
How it would do this was issue
government backed bonds to the banks and purchase distressed loans off the bank’s loan
books at a discount. The initial amount was 77 billion euro worth of loans purchased at a
discount of roughly a third to free up the banks books and allow them to resume lending.
50
The haircuts applied to the distressed loans varied with larger haircuts of up to a half or
more for the more toxic assets within the Banks. In the short term NAMA did little to free up
the banks liquidity problems to enable them to lend again, however the removal of these
bad loans from the books in the medium term would allow the Banks to return to
normalised lending practices and in the long term it is hoped that NAMA will return a profit
for the public finances. It remains to be seen whether NAMA will ever return a profit to the
public but what is clear is that the government’s policy in this regard was necessary to keep
the Banking system functioning. It would have been very easy to do nothing on the premise
that these bad loans were speculative gambles that went wrong and investors should pay
the price, however this approach would have resulted in the Irish banks becoming zombie
banks effectively. It must be acknowledged that the banks effectively all but stopped
functioning in the early stages of the crisis despite the governments NAMA intervention,
however it would have been a much more prolonged and severe situation had the
government not intervened with the NAMA model.
Along with the introduction of the NAMA legislation in 2009, the government was forced to
introduce a supplementary austerity budget on April 7th of that year. 51
The massive
deterioration in tax revenues for the public finances from €47¼ billion in 2007 to €40¾
billion in 2008 to €34½ billion in 2009 meant the government had no option but to reign in
on spending and broaden the tax base. 52
The measures announced in the April budget
would result in a further reduction of just under €1.5 billion in gross public expenditure and
additional revenue of €1.8 billion through taxation. Despite this third contractionary budget
in less than a year, the widening deficit needed more drastic cuts in spending and larger
revenue intake through taxation. 53
This prompted the government to seek the assistance of
UCD economist Colm McCarthy to recommend specific measures that could produce
48
(Ross, S. page 242)
49
50
(Kelly, M. page 16)
51
(Brian Lenihan budget 2009 speech: part 4, The Financial Context)
52
((Brian Lenihan budget 2009 speech: part 4, The Financial Context)
53

potential savings of up to 5.3 billion euro to the exchequer. The drastic measures included
unpopular cuts on current expenditure such as social welfare, education and health. With
these three departments being the by far the largest spending departments of the
government it would have been simply untenable to exclude them from any cuts that were
needed. 54
The review also called for the removal of 17,300 jobs in the public sector and
public sector pay cuts. 55
The public sector had grown in numbers by 50 percent from the
years 2000 to 2008 while over the same period average public service salaries increased by
59%. The result was that by 2009 public sector pay accounted for over 40 percent of total
spending for the department of finance. The bulk of the extra tax revenue accumulated in
the boom times had gone towards expanding the public sector and rewarding those who
worked in it with little or no reform in the provision of public services.56
An ESRI report in
December 2008 showed that lower grade public sector employees earned on average
between24 and 32 percent more than there private sector counterparts while senior public
sector employees earned approximately 10 percent more.57
Taking this in to account and
with the budget deficit heading towards 10 percent of GDP or just under 16 billion euro for
the end of 2009, the government simply had no alternatives but to face up to and address
the bloated public sector pay bill.
By the end of 2009 as job losses soared and government revenues continued to plummet
the government announced a further 4 billion euro adjustment in expenditure cuts and
revenue raising measures for the year 2010. By now Irelands deficit and debt/GDP was
among the highest in the Eurozone. 58
Four austerity budgets in the 18 month period from
July 2008 to December 2009 had achieved roughly 14.6 billion euros through savings and
taxation measures, the largest budgetary adjustment in the Western world. Indeed in the
early months of 2010 it seemed that Ireland had come through the worst of the crisis. This
however was not to be the case. 59
The second half of 2010 brought with it the Eurozone
crisis, uncertainty surrounding peripheral Eurozone countries debt sustainability brought
Ireland under the international spotlight for all the wrong reasons. Following Greece’s
financial bailout by the Troika in May 2009, investors became increasingly weary of
purchasing Irish government bonds. 60
In September, two years after the controversial bank
guarantee the final estimate of bailing out Anglo Irish Bank came in at the jaw dropping
figure of 30 billion euro. The recapitalisation of the bank through government backed bonds
known as promissory notes that would make cash payments over the following ten years,
equating to roughly 3 billion euro per annum. 61
The promissory notes however were
unexpectedly counted against Ireland’s government deficit in 2010 due to Eurostat’s rules,
54
55
(Manseragh, M. page 116. (Brian Lenihan in calm and crisis))
56
57
58
Whelan, K. page 10)
59
60

consequently this added a further 20 percent of debt/GDP on to the existing government
deficit of 12 percent to GDP resulting in the overall budget deficit reaching a world record
32 percent of GDP. Shortly afterwards, the interest on Irish government bonds shot upwards
to unsustainable levels. The government shortly afterwards seized borrowing from the
International markets, insisting that the Irish State was fully funded until June 2011.
To respond to the now worsening sovereign debt crisis the government announced the
National Recovery Plan for 2011-2014 in which after discussions with the European
Commission62
it spelled out a further 15 billion euro in budget adjustments, 10 billion
through public expenditure cuts and 5 billion euro in taxation measures. 63
The goal was to
bring the government deficit down to below the Stability and Growth Pact limit of 3% to
GDP. The first of which was a 6 billion euro adjustment for 2011, the largest single
contractionary budget in decades.64
Economist Colm McCarthy put it frankly that “Ireland’s
problem is not a lack of will, it’s a lack of options”. 65
Following the National Recovery Plans
publication, French president Nickolas Sarkozy and German Chancellor Angela Merkel made
an unprecedented intervention known as the Deauville declaration.66
In this announcement
the two premiers stated that from 2013 investors and bondholders would have to share the
burden of any future State bailouts in the Eurozone. This declaration was a pivotal moment
in the context of Ireland’s economic crisis as any hope of the country regaining market
confidence was now all but completely scuttled. Following the announcement funds fled
from the Irish Banking sector which had to be replaced by even more funding from the ECB.
By late October Irish banks owed the ECB an eye watering 140 billion euro and Irish
government bonds were downgraded to junk status by investment firm Moodys. In
November negotiations between the Irish government and the ECB, IMF and EU formally
commenced about a possible financial bailout.
It took no longer then five weeks after the Deauville declaration for Ireland to be entered in
to an official Troika bailout. The bailout features were more or less the blueprint for the
already published National Recovery Plan, with broadly the same targets as outlined in the
Plan. 67
The government unsuccessfully attempted to include burden sharing in the bailout,
though this proposal was supported by the IMF delegation, the ECB categorically ruled out
any burning of the bondholders. In summary there were two major consequences of the
2008 crisis here, one economic the other political. The loss of economic sovereignty was
without doubt the greatest single economic consequence of the crash here. The subsequent
political consequence of the crash came shortly after the bailout with the general election in
61
62
(National Recovery Plan, page 5)
63
(National Recovery plan, page 5)
64
(Leahy, P. page 45)
65
(Leahy, P. page 47)
66
(Leahy, P. page 57)
67
(Leahy, P. page 54)

February 2011. The political landscape was altered beyond recognition. 68
Fianna Fail, the
country’s natural party for government was all but wiped out, the party lost 51 seats of its
71 remaining TDs, returning to the 31st Dail with a mere 20 deputies. The party which had
governed for 61 of the previous 79 years since it first assumed office in 1932 came quite
close to virtual wipe-out. The public felt with warranted justification that the party was the
most responsible for the economic crash and culpability rested with them. As a result the
party paid a heavy political price. 69
Fine Gael and Labour assumed office with its largest ever
majority coalition of 113 TDs. 70
The Fine Gael/Labour coalition government though it
campaigned strongly on a platform to renegotiate the bailout in the end did not deviate
from the original bailout plan. 71
The populist rhetoric employed by both parties was evident
prior to election 2011, “Frankfurts way or Labours way” was proudly stated by Labour
leader Eamon Gilmore and “Anglo Irish will not receive another red cent if we are elected”
by Fine Gaels Leo Varadkar. But this rhetoric before the election turned out to be just that,
rhetoric. Both parties subsequently implemented in full, the terms of the programme. Was
this due to a change of policy once they assumed government? Extremely unlikely. The
reality was that there was simply no feasible economic alternative to the fiscal consolidation
that was required in Ireland at this time.
72
A common misconception of the Irish crisis is that the Bank bailout and subsequent
recapitalisations were the source of all the country’s economic problems in this period. They
no doubt played a part but most of the fiscal adjustment would have been required in the
absence of any banking crisis. The political motivation and design of the bank guarantee I
have no doubt will be debated in the coming years and down through the course of history,
but I am strongly of the view that the government’s response through prompt fiscal
adjustments was the best possible option for this country at the time. What is clear however
is that the primary cause of the economic crisis here was a domestically created property
bubble which through lack of regulatory measures was allowed to over-heat. We will never
know what might have been had the government pursued policy alternatives such as
defaulting on sovereign debt or allowed a banking system collapse. Again the alternatives
will be debated by many in to the future, my view put simply is that the policy’s that were
pursued by both governments in this period were not right, nor were they wrong, but
ultimately they were necessary to prevent a much greater economic catastrophe from
occurring.
Bibliography:
68
69
(Leahy, P. page 100)
70
(Leahy, P. page 71)
71
(Leahy, P. page 71)
72
(Whelan, K. page 1)

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1.) Whelan, K. (2013). Irelands Economic Crisis: The good the bad and the ugly. UCD.
2.) Kelly, M. (2009). Whatever happened to Ireland. UCD.
3.) Avellaneda, S. Hardiman, N. (2010). The European context of Irelands Economic
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http://www.budget.gov.ie/The%20National%20Recovery%20Plan%202011-2014.pdf
6.) Brian Lenihan Emergency budget 2009 speech: link-
http://www.budget.gov.ie/Budgets/2009Supp/FinancialStatement.aspx

Irish economic crisis paper-11538777

Irish economic crisis paper-11538777

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