Political Transformation in Ireland: Boom, Bust, and Beyond*

Abstract

Political Transformation in Ireland:Boom, Bust, and Beyond* Theresa Reidy (bio) and Timothy J. White (bio) Ireland's journey from the booming Celtic Tiger economy to a poor man of Europe was based primarily on a property boom and bust that made international headlines from 2008 to 2011. The country's financial collapse, while prompted by unique Irish causes and circumstances, was rooted in the global financial crisis that especially affected several European states and was linked to the U.S. financial crisis and contraction. Ireland had experienced a period of rapid economic growth in the late 1990s, based on impressive productivity gains from investment in information technology, pharmaceuticals, and medical devices. In the early 2000s speculation in housing led to a property bubble or a "confidence trap." Martin Wolf claims that economic theorists should be considered culpable for their inability to predict or explain financial crises like the one that came to Ireland and many other states in 2008.1 But we contend that the financial crisis was as much political as it was economic. One must appreciate the political circumstances that allowed and perhaps encouraged the kind of financial speculation that brought on the crisis. David Runciman's theory about advanced democracies suggests that these types of governments muddle from crisis to crisis, and this tendency explains the confidence that the Irish possessed as their economy boomed on the back of a property bubble in the early 2000s. Oblivious to this confidence trap, Irish government policies tended to facilitate the economic bubble rather than to heed warnings of an inevitable [End Page 101] correction in the housing market.2 The confidence trap might also explain the lack of more significant protest behavior, as Irish voters were quite ready to wait for elections to indicate their dissatisfaction with the fiscal-retrenchment policies that came in the wake of the bust.3 This article documents the economic policies that led to the boom and also addresses the policies that have been enacted by successive Irish governments to respond to the economic crisis that emerged in 2008. We contend that the economic crisis has fractured the party cartel that has governed Ireland since independence. The politics of how the Irish government created and reacted to the financial crisis can best be understood through an examination of Ireland's unusual recent economic history and of contemporary politics in both the domestic and the European Union arenas.4 While Ireland's own policies played a critical role in its economic successes and failures, the integration of national economies within the euro area created a tug and pull within Europe. This factor can most easily be seen in the difference between creditor and debtor states. Ireland joined the latter category after its financial crash. Germany, as the principal creditor state in Europe, dealt incrementally with the burgeoning debt crisis. This meant that the economic institutions created to facilitate an integration of European economies managed the economic crisis but did not solve it.5 For the Irish, their financial collapse meant a bailout by the European Commission, the European Central Bank, and the International Monetary Fund (IMF) in late 2010. These three institutions, known as the troika, [End Page 102] defined the means by which the Irish could access the capital necessary to finance their burgeoning debt and deficit. For many in Ireland, having these institutions control Irish economic policy signified a loss of sovereignty and marked a new nadir in Irish political and economic life. A few short months after the negotiations that brought Ireland to its knees in December 2010, the Fianna Fáil government was replaced in an election in February 2011 that was the third most volatile in Western Europe since the Second World War.6 The crushing defeat of the dominant Fianna Fáil party in the 2011 general election created new dynamics in the party system.7 The coalition government of Fine Gael and Labour that came to power had the largest governing majority in the Dáil in the history of the state. After several years of higher taxes and frozen or reduced public services and spending, the Irish economy began to recover, and by 2015 it...