When Irish eyes ain’t smiling

The 1980’s were one of the most disastrous periods of Ireland’s post-war history. Then too, the Irish State was near to bankruptcy. Then, they had refused recourse to the IMF. The Celtic Tiger was built on the determination of every last Irishman or woman — Jack or Jane — to end the humiliation of Ireland’s persistent poverty. By the end of the 1990’s Ireland had been voted as the best place in the world to live. Unemployment fell to five percent as measured by the live register — not to be confused with our own statistics. In 2007 Irish debt was 12 percent of GDP. At the same time, German debt was 50 percent of GDP.

Within three years Irish unemployment jumped to 14 percent. Growth had dropped from the 10 percent in the days of the Celtic Tiger to 0.2 percent in 2010. The deficit was now 32 percent of Ireland’s GDP. Signs of the crisis were everywhere, from half-finished apartment blocks to finished but empty houses, to the queues of Irish hoping to leave for Australia.

Developers and Bankers

The figures give an indication of what went wrong. The Irish government estimated that fifty billion Euros would be necessary to save Ireland’s banks. Thirty-four billion was needed for what had been a small bank in the 1990’s: Anglo-Irish. This was by September of this year. Over the last four years a number of scandals had revealed a particularly cosy relationship between developers, politicians and the nation’s bankers. These last, with an excess of liquidity and following what had been the insignificant Anglo-Irish bank, expanded their profits by the cute mechanism of easy credit financed by Irish banks’ huge borrowing from other EU banks and particularly from German banks. It was this private speculative frenzy which fed the housing boom and was the financial bubble which burst. Nothing to do with Government spending, as we seem to think, nor with ‘the plain people of Ireland’, as De Valera would have said. It is the Government’s decision to honour the debts of its profligate banks, questionable politicians and wheeler-dealer speculators which, as Paul Krugman remarked, turned “… private debts into public obligations.”

The Euro Threatened

By September, Ireland had already lived through three austerity budgets, each with promises that this tightening of belts and this austerity would end the crisis. After each the crisis worsened. By the beginning of November, an Ireland already fragile from the banking crisis, faced another frenzied speculation. This time it was against the Irish currency from mainly foreign on-line speculators. It was this which pushed the Irish economy over the edge. The EU now pressed Ireland to request a bailout with finance not only from the EU, but from an IMF that Ireland had once refused.

It had been supposed that the IMF was the remedy for developing countries. Greece first, Ireland second, proved that the EU did not save its member states from the IMF. On the contrary, Ireland’s budgetary provisions had become the affair not only of the European Central Bank and the IMF, but also of the strongest of the EU member States, France and Germany; understandably so, for the question of the Euro was a major reason for concern. Membership of the Euro Zone had meant that Ireland, unlike the United Kingdom or the USA, could not in a crisis de facto devalue by printing more money. It also meant that the massive currency on-line speculation, which had brought Ireland to the verge of bankruptcy, could be used against Portugal, Belgium or Spain threatening the Euro itself.

Already today, Wednesday (when this was written), the fall of the Euro on the markets suggests that the speculators have now moved to Portugal and Spain and may be eyeing Belgium and Italy. Small consolation for the Irish.