Download Ireland

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 Ireland established 1919
Missed the Industrial Revolution
Joined European Community in 1973
The Celtic Tiger
•
•
•
•
•
•
•
Began in the 1990’s
Reduced public spending
Cut taxes
Promoted competition
Google, Intel, Microsoft
Transition from agriculture to knowledge
Steady continued GDP growth
Bubble-nomics
• Steady continued GDP growth
• 2005 – The Economist rated as “Best Place to
Live in the World”
Bubble-nomics
• Established the European Common Currency
1999
• Low interest rates from Euro
• Currency Appreciation
• Beginning of a massive property bubble
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
Bubble-nomics
• Easy credit -> 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
Causes of the bubble
• Low real borrowing rates
• Irrational exuberance
• Regulatory imprudence
• 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
• 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
• 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
• 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
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
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 Euro’s were provided by the IMF.
• 22.5 billon Euro’s were Provided by the EU
• 22.5 billion Euro’s from the European Financial stability facility
• 4.8 billion from The U.K
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).
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.
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.
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.
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).
• Should we in America care
about the Irish Debt crisis?
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.
Conclusion
• Economy has only shrunk to 2002 levels
• Got a taste of the good life and will only want
more
References
• 1) ECB Emergency Lending http://www.ft.com/cms/s/0/932501aa3c41-11e0-b073-00144feabdc0.html#axzz1FtLH4sri
• 2) Breakdown of the money
http://www.europeanvoice.com/article/2010/11/eu-approves-irishbail-out/69573.aspx
• 3)The New government
http://www.economist.com/node/18285942?story_id=18285942&f
src=rss
• 4) The Status Quo http://www.independent.ie/nationalnews/stand-and-deliver-2568359.html
• 5) Debt Summery
• http://www.economist.com/node/18176072?story_id=18176072
• 6 ) The U.S. and Irish Credit Crises: Their Distinctive Differences and
Common Features
www.irisheconomy.ie/Notes/IrishEconomyNote10.pdf
References
• External Surveillance of Irish Policy During the
Boom
www.irisheconomy.ie/Notes/IrishEconomyNot
e11.pdf
• CIA World Factbook www.cia.gov