The 2008 financial crisis erupted in the U.S. but it turned into a worldwide crisis, subjecting every country to a state of turmoil. PIIGS (Portugal, Italy, Ireland, Greece, Spain) is an acronym, referring to the Eurozone countries that were worst affected by the crisis. Initially, Ireland was not a part of the PIIGS countries but found its way into the acronym when it fell into recession after the 2008 crisis. In the aftermath of the crisis, these countries were left with a lost decade and unstable economies. Ireland was the first state (among Eurozone countries) to enter into a recession. The country hailed as a ‘Celtic tiger’, witnessed a dramatic turn from a booming economy to a nation-wide recession during the PIIGS crisis. Within a matter of years, Ireland looked life-less as it possessed a troubled economy and financial instability. But how did the financial crisis in Ireland unfold? How did the Irish economy deal with its woes? How did it respond and what were the prospects of recovery?
‘Celtic Tiger’ Years
The Irish economy expanded during the ‘Celtic Tiger’ years (1995-2007) due to the introduction of low corporate tax rates and low-interest rates. This attracted many investors to Ireland and led to an increase in investments along with a rise in job opportunities. A lucrative option of jobs in a growing economy led to a strong wave of immigration and eventually an increase in investments in residential and commercial developments, swelling to account for a fifth of the nation’s economy. Major Irish banks went on a lending spree and the foreign borrowings for funding real estate projects also increased. The Irish economy was at its peak during this period and the reliance on the construction sector led to the formation of a property bubble.
The advent of the crisis
The economic success during the ‘Celtic Tiger’ years was reduced to ashes with the surfacing of the 2008 financial crisis. Despite having several years of economic growth, this property bubble pushed the Irish economy into huge debt. This bubble burst coincided with the global financial crisis of 2008 and an imminent recession took way in Ireland. With the onset of the recession, Ireland’s tax revenues declined and the budget deficit increased. The ISEQ (Irish Stock Exchange Quotient) index tumbled, falling from a peak of 10,000 points in April 2007 to 1,987 points in February 2009.
The values of all the residential and commercial properties declined along with falling sales. New unsaleable flats and unfinished building sites were suddenly shut down, leaving ghost estates all across the country. People were left without a home and a job. Unemployment rose from 4% in 2006 to 14% in 2011, and reduction in unemployment benefits and welfare allotments compelled immigrant workers to retreat from the country. Investors who had taken loans were engulfed in debt and the speculations arose that the banks would default on their debts. Shockingly, by the time the financial crisis in Ireland kicked in, Anglo Irish Bank held loans worth 73 billion euros – half of Ireland’s GDP and incurred losses of about 34 billion euros.
Ireland had to deal with the crisis itself, as compared to the other PIIGS (Portugal, Italy, Greece, and Spain) countries. In response to this crash, varying measures were taken by the government for rescuing the struggling economy. In September 2008, the government issued a 2-year unlimited guarantee for all debts, covering debt estimates of around 440 billion euros which was also approved by European countries. A National Asset Management Agency (NAMA) was created to acquire property development loans from Irish banks in return for government debt bonds. Ireland preponed it’s Government Emergency Budget which was due in December 2008 to October 2008. In a hasty attempt to intervene in a severe economic downturn, controversial measures like withdrawal of essential vaccines, closure of military barracks, restructuring income levies, social welfare cuts, pay cuts, etc. were incorporated in the budget.
This invited widespread criticism and led many protestors to streets. As a result, a supplementary budget was proposed in April 2009 to address the ailing economy and a Croke Park Agreement was done for ensuring no pay cuts and layoffs during the financial crisis in Ireland. By 2010, the deficit became unmanageable and the condition of banks worsened as they were not able to raise finance and their debt downgraded to junk status. The government started negotiations with European Central Bank and IMF for a rescue deal and a request for a “financial assistance program” worth 85 billion euros was agreed upon by the EU, IMF, and the Irish state.
Europe as a whole was going through a debt crisis which put immense pressure on Ireland to get out of the turmoil before the Eurozone and its currency fell apart. Irish people had to bear the brunt of huge wage and employment cuts along with a major increase in taxes. Simply put, Irish taxpayers were on the hook and had to raise billions to pay off the debts mounted by Irish banks. Due to fears that the investors might leave, the corporate tax rate was kept low despite their involvement in all the wrong that happened. As the collapse became evident, 41.7 billion euros were injected by the government to bail out banks. Why? They could not leave the banks, measuring more than half its GDP, collapsing in the middle of a crisis as this could have pulled the entire economy down.
The financial crisis in Ireland and its inclusion in the PIIGS acronym also had negative effects on the country’s market and people’s perceptions. The European Union was concerned for PIIGS countries because financial instability in these nations could lead to a meltdown in the entire Eurozone. There was an agreement among the EU countries to keep their yearly budget deficits to 3%. In fact, this deal has been broken several times in the past and is difficult to maintain even in the future.
But what about Ireland’s common man? Households in Ireland are still underwater as their savings have eroded and there is nothing left in their kitty. The heavily indebted mortgage holders are still struggling to hold on to their homes and are forced to live in temporary accommodations. The financial crisis in Ireland was a phase of grinding austerity, a generation lost to unemployment and mass emigration. Since 2013, Ireland has enjoyed a partial recovery but the wounds of the 2008 financial crisis remain sore. For an economy burdened with unsustainable levels of public and private debt, this economic turnaround was painfully achieved. In 2013, Ireland dropped out from the derogatory acronym after a smoothed exit from the bailouts and constructive efforts for recovery by the government. Increasing exports and industrial growth has enabled Ireland to stand on its own feet and it has risen to become one of the fastest-growing economies of the European Union.
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Currently pursuing Economics (Hons.) from SRCC, Simran is an avid reader and is always on a lookout for some ‘real’ knowledge. She is a proud member of BTS Army and has an innate obsession for Sundays. She often finds herself stuck in the rat race and struggles to have a consensus between her heart and mind.