Demise of the Celtic Tiger
Will Ireland manage to recover from the threat of financial ruin?
As I write the finance ministers of the EU have approved a complex €85 billion package to rescue the Irish economy from the effects of the recent global recession. The extent of this is perhaps more striking when written as €85.000.000.000. Problem solved.
Or is it? And what is the problem? How did it arise? Who does it affect? What lessons are to be learned from these experiences? Indeed there are probably more questions about the factors which govern economic issues in today’s world than there are acceptable answers. The media response is focussed not on political or governmental reaction but on that of the market, that is, the financial giants.
Some key words are power, forces, growth, scale, market, global. Undoubtedly, there are many more, and much has been and continues to be written about these factors daily, so I don’t propose to rehearse them again here. Suffice it to say that they have all played a very significant role over the past 60 years, which is the time span in which Ireland emerged from being a very poor subsistence agricultural economy to the roaring hi-tech multinational Celtic tiger – a tiger which turned into a paper one and now lies in ashes, as the nation prepares to don the sackcloth of austerity. The Government outlined the necessary austerity measures in November. They will be incorporated in the 2011 national budget which will be presented on Dec. 7. It includes major cutbacks in public spending and a broad range of tax increases.
What went wrong? There are two principal causes for the difficulties which arose: Firstly, the over-dependence and over-feeding of a hugely successful property and development market, which, for as long as the going was good, contributed greatly to the national coffers. However, it also created a very high level of private sector debt to international institutions as the amounts were far beyond the capacities of the national banking system. This worked well despite the risks involved until the bubble burst in the context of global recession.
Secondly, the squeeze on credit arising from the same recession, a recession way beyond the control of any single nation, has resulted in borrowing difficulties for nations, including Ireland. The cost of borrowing from the huge financial institutions is too high to encourage the necessary drive towards renewed growth and the threats to existing credit are still menacing.
Furthermore the lending by the institutions was risk-free, meaning that the taxpayers of Ireland and the EU are now faced with picking up the tab. All investors, who enjoy the fruits of success, should be required to bear the pain of failure. The parallel is the disgrace of the sub-prime mortgage scandal in the US.
The results are enormous difficulties for government and people, and not just in Ireland. Understandably, there is a lot of anger and even more fear. The sight of the financial institutions getting richer and richer and paying themselves more and more contributes to these feelings.
However all is not doom and gloom. The Phoenix Park in Dublin is the largest enclosed park in Europe. Its centre point is a column topped by a bird with spread wings. This is a good focal point in the present Irish situation, for Ireland, with the extraordinary will of her people and the support of her European partners will surely arise from the ashes just as the Phoenix symbolises the hope for a brighter future for all the people.
Oliver Macdonald is an Irish pensioner who, whenever he can, escapes from austerity in the opera houses of Vienna