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Ireland’s Financial Crisis
The Celtic Tiger Boom & Bust
2008 - 2011
By: Griselda Hernandez, Jennie Duong, Driss Elouartallani
CAUSES OF THE CRISIS
Low
Corporate Tax Rate
Low
Interest Rates
Liberalized
Banking Regulation
HOUSE COMPLETIONS,
1997- 2008
HOUSE PRICES,
1970 - 2008
REAL INTEREST RATE,
1990 - 2007
LOAN APPROVALS,
1970 - 2008
TYPE OF CRISIS

Asset Price Crisis
When asset prices are driven well above their
fundamental economic values.

Debt Crisis
After government intervention it turned into
Ireland’s debt crisis which had to be bailed out
by the EU and IMF.
IMPACT ON THE AGGREGATE ECONOMY
 In
2007 the housing market started to
correct itself.
 Interest rates began to increase
 The Economy Became Affected by the
shock of the sub-prime financial crisis and
the recession in Ireland’s main trading
partners, Britain and the USA.
IMPACT ON THE AGGREGATE ECONOMY
IMPACT ON AGGREGATE ECONOMY
2008
The economy contracted by
1-2.5%
Domestic Demand Fell Sharply
Low Consumer Confidence
THE CELTIC TIGER
 The
term to describe Ireland’s rapid
economic growth in 1995 to 2003.
 It evolved from one of the poorest
Western Europe countries to one of
the most successful.
 Had the second highest GDP within
the EU.
IRELAND REAL GDP
Current Price level of GDP in Euros
IRELAND’S UNEMPLOYMENT RATE
Level of Unemployment (in thousands)
CRASH OF THE IRISH BANKS
CRASH OF THE IRISH BANKS
(CONT.)
Its government took on the liabilities of its
oversized banks who also had lent
indiscriminately throughout the Eurozone.
 Resulted in a loss of liquidity and market
funding, and have made Irish banks overly
dependent on capital from the European
Central Bank.
 The government had to bailout the largest
financial institutions in Ireland.

BAILING OUT THE BANKS
Sept 30, 2008 – guarantees all the debt and
liabilities of the six institutions for €440bn. “The
cheapest bail-out in the world”.
 Jan 2009 – Anglo Irish becomes nationalized,
fearing it could collapse.
 Feb 2009 – Government gets a 25% stake in Bank
of Ireland and Allied Irish.
 March 2009 - Standard and Poor's downgrades
Ireland's credit rating from AAA to AA+ and says it
may fall further.

BAILING OUT THE BANKS (CONT.)
Oct 2009 – The “bad bank” known as National
Asset Management Agency is created to deal with
the risky property loans.
 Dec 2010 - Nationalizes AIB.
 March 2011 - Ireland's central bank publishes the
results of "stress tests" on its four remaining
banks, estimating an additional €24bn injection of
capital will be needed.
 Throughout 2008 – 2011: the government bails
out the banks for a total of €70bn.

WHAT DID POLICY MAKERS DO?

Ireland is part of the European Union and is
using the Euro.

The EU implemented a pro-cyclical fiscal policy.

All of the banks debt was guaranteed by
Ireland’s government.

The IMF and EU approved a three year bailout
package for 85 billion.
EU/IMF INTERVENTION
Key Objectives:
•Identify banks that are in trouble and return
them to health through downsizing and
reorganization.
•Recapitalize banks and encourage them to rely
on deposit inflows and market-based funding.
•Increase bank supervision and regulation while
introducing a comprehensive bank resolution
framework.
THE HARD TIMES AHEAD
Reducing public expenditure : The size of the
public sector will be reduced, and universal
social welfare benefits will also be cut.
 Tax rates will increase. 45% of Irish households
have not paid income taxes until now.
 Public debt will remain high for the next few
years.

THE HARD TIMES AHEAD (CONT.)
Purchasing power and incomes have been
reduced drastically for consumers.
 Jobs have been lost (especially construction)
unemployment is high.
 Because of government budget cuts, subsidies,
and government aid are drastically reduced,
which greatly affects lower income families.
 People are leaving the country for better
opportunities, 140,000 by 2012.

THANK YOU
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