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IRELAND IN CRISIS

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IRELAND IN CRISIS Robert Martinez Jeffrey Brandt Econ 490 Professor Ramon Castillo History Conquered by England by 1603 20th century war of independence Republic of ... – PowerPoint PPT presentation

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Title: IRELAND IN CRISIS


1
IRELAND IN CRISIS
  • Robert Martinez
  • Jeffrey Brandt
  • Econ 490
  • Professor Ramon Castillo

2
History
  • Conquered by England by 1603
  • 20th century war of independence
  • Republic of Ireland established 1919
  • Missed the Industrial Revolution
  • Joined European Community in 1973

3
The Celtic Tiger
  • Began in the 1990s
  • Reduced public spending
  • Cut taxes
  • Promoted competition
  • Google, Intel, Microsoft
  • Transition from agriculture to knowledge
  • Steady continued GDP growth

4
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5
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6
Bubble-nomics
  • Steady continued GDP growth
  • 2005 The Economist rated as Best Place to Live
    in the World

7
Bubble-nomics
  • Established the European Common Currency 1999
  • Low interest rates from Euro
  • Currency Appreciation
  • Beginning of a massive property bubble

8
Bubble-nomics
  • Sharp exchange rate appreciation dampened export
    activity
  • Economy shifted to domestic demand, especially
    real estate and construction
  • Banks funded by foreign capital and over
    specialized in real estate

9
Bubble-nomics
  • Easy credit -gt housing and development bubble
  • 1/5 of employment construction industry related
  • Massive portion of tax revenue from real estate
    market on the backs of rapidly inflating housing
    costs

10
Causes of the bubble
  • Low real borrowing rates
  • Irrational exuberance
  • Regulatory imprudence

11
  • Shock waves from US financial meltdown
  • Credit tightened dramatically
  • Real estate values stopped rising, sending the
    whole house of cards tumbling
  • Real estate prices crashed

12
  • Irish banks over invested in real estate began to
    fail
  • Without intervention these banks would collapse
    and send economic shock waves
  • Government stepped in to guarantee all
    liabilities in the largest Irish banks
  • Turned the financial crisis into a government
    debt crisis

13
  • From 2007-2009
  • Govt went from small surplus to deficit of 14 of
    GDP
  • Govt debt rose from 25 GDP to 64
  • IMF blames low tax rates in boom years

14
  • What is a Financial Crisis?
  • Financial institutions/ assets lose significant
    value
  • What is a Debt Crisis?
  • Fear that Govt will not honor its debt
  • Rapid increase in interest rate of borrowing

15
Financial to Debt Crisis
  • The Irish Government lost investor confidence
    when it guarantees all banking liabilities
  • Interest rates on Irish borrowing increased
    dramatically
  • Led to inability to finance current obligations

16
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17
The Bailout
  • In November of 2010 The Irish government had to
    accept an 85 billion Euro bailout from the IMF
    and EU.
  • The Bailout was funded by a coalition of several
    key European financial institutions and
    governments.
  • Ireland provided 17.5 billion Euros from their
    own pension fund.
  • 22.5 billion Euros were provided by the IMF.
  • 22.5 billon Euros were Provided by the EU
  • 22.5 billion Euros from the European Financial
    stability facility
  • 4.8 billion from The U.K

18
The Banks continue to borrow from the European
Central Bank
  • The most troubled Irish banks, The Anglo Irish
    Bank and The Irish Nationwide Building Society
    continued to depend deeply on emergency lending
    from the European Central Bank (ECB).

19
The Banks continue to borrow from the European
Central Bank
  • Less then a month ago on February 19th of 2011
    both The Anglo Irish Bank and The Irish
    Nationwide Building Society needed 16 billion
    Euros in overnight emergency funds from the ECB.

20
In the Den With Lions
  • With public anger against the Fianna-Fail led
    government which presided over the boom and bust
    years of Ireland on February 25 of the year 2011
    a new government was ushered in.
  • Fianna-Fail (The once dominant political Party
    in Ireland) lost 75 of their seats in parliament
    dropping from 77 members to only 20 members.
  • With a large drop in the Fianna-Fail party, large
    gains were made by Fine Geal party, which gained
    15 seats rising from 51 members to 76 parliament
    members.

21
The Latest Update
  • On March 7 the Irish government is in the works
    of trying to negotiate new terms on the condition
    of The Irish bailout.
  • Key budget cuts will stay in place such as 3
    billon Euros in budget cuts and 25,000 lay offs
    in the government sector.
  • Instead they will focus on new issues which they
    feel they can control
  • The first being lowering the interest rate on
    their loans gained from the bailout.
  • Second is reducing the deficit without raising
    taxes.
  • Third is privatizing key state assets
  • Fourth is finding 50 billions Euros to replace
    ECB emergency funding for Irish banks.

22
Critics
  • Many in Ireland feel that their austerity cuts
    are unevenly placed on Irish shoulders.
  • The Irish public feel that their property bubble
    which led to the debt crisis was fueled by large
    investments from all European countries
    (especially French and German investors).

23
  • Should we in America care about the Irish Debt
    crisis?

24
YES!!!!!!!!
  • The Irish economy is a developed western economy.
  • Most people see debt crisis as a situation that
    only affects lesser developed countries.
  • But the Irish have a high standard of living and
    are now seeing that lifestyle changed
    dramatically.
  • Unemployment in Ireland is now 13 percent.
  • Irish GDP has contracted by 14 percent.
  • Most of all the Irish Debt crisis has been
    demoralizing for the Irish public.

25
Conclusion
  • Economy has only shrunk to 2002 levels
  • Got a taste of the good life and will only want
    more

26
References
  • 1) ECB Emergency Lending http//www.ft.com/cms/s/0
    /932501aa-3c41-11e0-b073-00144feabdc0.htmlaxzz1Ft
    LH4sri
  • 2) Breakdown of the money http//www.europeanvoice
    .com/article/2010/11/eu-approves-irish-bail-out/69
    573.aspx
  • 3)The New government http//www.economist.com/node
    /18285942?story_id18285942fsrcrss
  • 4) The Status Quo http//www.independent.ie/nation
    al-news/stand-and-deliver-2568359.html
  • 5) Debt Summery
  • http//www.economist.com/node/18176072?story_id18
    176072
  • 6 ) The U.S. and Irish Credit Crises Their
    Distinctive Differences and Common Features
    www.irisheconomy.ie/Notes/IrishEconomyNote10.pdf

27
References
  • External Surveillance of Irish Policy During the
    Boom www.irisheconomy.ie/Notes/IrishEconomyNote11.
    pdf
  • CIA World Factbook www.cia.gov
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