Abstract
We examine the three interlinked Irish crises : the competitiveness, fiscal and banking crises, showing how all three combined to lay a lethal trap for Ireland. Starting from a point of economic balance, a series of poor government decisions led to the country once dubbed the ?Celtic tiger? become the second eurozone state after Greece to seek a bailout, with the EFSF/IMF intervening in late 2010.
Highlights
In early 2008 the Irish economy was the first in the Eurozone to enter a recession
Much of the economic collapse was predicated on purely internal economic imbalances that developed over the period of 2001-2007 and that relate to the decline in international competitiveness, poor regulatory and supervisory environments in banking, construction and other sectors, over-reliance for growth on construction sector and lack of proper functional macroeconomic and fiscal stabilization systems
Growth returned to both GDP and GNP measures in the last quarter of 2010, courtesy of the severe fiscal austerity measures required to bring public deficits from their stratospheric highs of 32% of GDP in 2010 to 3-4% of GDP by 2015, it is highly unlikely that the Irish economy will be able to escape a double dip recession on real growth side
Summary
Economic conditions in Ireland during the 1980s were catastrophic, characterised by high unemployment, high rates of emigration, high rates of inflation, and high levels of personal taxes. Prior to 2001, Irish economic growth can be described as being fuelled by a combination of the economic catching up process and the effects of the global spillovers from the ICT bubble The former force implies that between 1991 and 1998-1999, Ireland, previously one of the least developed European economies, was rapidly converging in macroeconomic terms to the Euro area average levels of income and markets development (Honohan and Walsh (2002)). Low real interest rates (based on a combination of rampant domestic inflation and low policy rates set by the ECB) and easy access to credit “contributed to inflating private sector balance sheets and property prices Both household and non-financial corporate indebtedness rose sharply prior to the crisis to levels that were among the highest in the EU27” (Commission (2011)). The Irish economy was, even absent any major external shock, in a weakened position by early 2008
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