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Ireland in the global financial crisis
Niamh Hardiman
UCD School of Politics and International Relations
[email protected]
Outline
• What ‘variety of liberalism’?
– Anglo-American LME…
– … with an activist state
• Macroeconomic
• Social partnership
• Industrial policy
• Nature of the crisis in Ireland
– Banking vs fiscal
– Origins of crisis
– Political and policy context
• Current experiences
– An entirely ‘orthodox’ response – why?
– Sustainable?
2
Growth and unemployment shock
Dramatic rise and fall
Employment-to-population ratio
Eurostat, May 2011
4
Debt and deficit shock
Eurostat, April 2011
Banks
Fiscal Cost of Supporting Financial Sector, 20082010
Impact on public debt (% of GDP)
25.0
23.5
20.0
15.0
12.7
10.0
9.6
6.2
5.0
5.8
5.2
4.0
2.2
2.2
2.1
0.3
0.0
0.2
0.0
0.0
0.0
0.0
0.0
0.0
6
Financial and fiscal crises
Problem status of financial
sector debt
Problem
status of
sovereign
debt
High
Low
High
UK, USA,
Japan
Greece
Portugal
Low
Ireland
Spain
Australia, NZ,
Canada;
Denmark,
Norway,
Sweden,
Finland;
Switzerland
Germany, NL
7
Financial and fiscal crises
Problem status of financial
sector debt
Problem
status of
sovereign
debt
High
Low
High
UK, USA,
Japan
Greece
Portugal
Low
Ireland
Spain
Australia, NZ,
Canada;
Denmark,
Norway,
Sweden,
Finland;
Switzerland
Germany, NL
8
Ireland's Fiscal Pathway, 1985-2012
70.0
60.0
% of GDP
50.0
40.0
30.0
20.0
10.0
1985
1988
1991
1994
1997
Total expenditure
2000
2003
2006
2009
Total revenues
OECD
2012
Background
• Poor banking regulation
– Overheating in EMU
– House price inflation
• Underlying fiscal weaknesses
– Thinner tax base
– Strong spending commitments
10
11
Honohan, 2010
12
Nyberg, 2011
The House Price Boom and Bust
Karl Whelan
13
Millions
Composition of taxation
€50,000
€45,000
Other
€40,000
€35,000
Corporation Tax
€30,000
€25,000
Capital Acquisitions Tax
€20,000
Income Tax
€15,000
Capital Gains Tax
€10,000
Customs
€5,000
Value Added Tax
€0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
TASC 2010, p.11
Lower
reliance on
income
taxation
OECD, Taxing
Wages 2007-8
(2009), p.51
15
Pay-tax trade-offs
Source: OECD Taxing Wages 2007/8 (2009)
16
Honohan, 2010
Explaining crisis
• Three bank reports tell us:
– ‘Plain vanilla’ speculation
– Poor regulation
– ‘Herd mentality’
• But
– What is this ‘group-think’?
– Why such poor accountability?
– Why no serious counter-weight?
• Actors, institutions, ideas
– Political coalitions after 2000: Fianna Fail and
banks, property developers, builders
– Poor governance, public and private
– ‘Orthodox’ economic framework
18
Choice of fiscal response to crisis
19
‘Orthodox’ fiscal measures in Ireland
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Fixing the mess:
Restructuring the financial sector
• Aversion to nationalization
– NAMA
– Slow recapitalization
• New regulatory appointments
– Central Bank Governor, Financial Regulator
• But old regime in the banks
21
Big questions
• Economic sustainability
• Political sustainability
22
Debt Ratios (EC and IMF Projections)
GNP
GDP
Karl Whelan
Ratings agencies – Ireland
24
EU, European Economy: the Economic Adjustment Programme for
Ireland. Spring 2011. p.12
25
Unit labour costs – painful deflation
26
Harmonized competitiveness indicators based on unit labour costs, whole economy. ECB, June 2011
Collapse of ‘ruling’ Fianna Fáil party
27
Red C polls
Protests?
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