IRELAND IN CRISIS

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IRELAND IN CRISIS

• Robert Martinez
• Jeffrey Brandt
• Econ 490
• Professor Ramon Castillo

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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

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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

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Bubble-nomics

• Steady continued GDP growth
• 2005 The Economist rated as Best Place to Live
  in the World

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Bubble-nomics

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

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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

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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

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Causes of the bubble

• Low real borrowing rates
• Irrational exuberance
• Regulatory imprudence

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• 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

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• 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

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• 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

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• 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

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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

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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

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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).

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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.

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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.

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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.

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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).

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

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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.

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Conclusion

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

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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

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References

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