By Mark Kinsella
I’m sure you are no stranger to the crisis that has swept our country’s financial markets for the past year. From Lehman to AIG to Bernie Madoff, the destruction has been basically unmatched in the history of the United States. However, these harsh times in the financial world have not been limited to the United States by any means. Many other countries have suffered immense losses and are going to be experiencing severe financial overhauls in the upcoming months. I was originally planning to discuss what has happened in multiple countries in this article, but I’ve decided that there is one country in enough trouble to deserve a full article. This country is Ireland.
Ireland has been going through an extremely turbulent time for its economy and financial system. From its unbelievable economic boom just a few years ago to the highest unemployment in over a decade, Ireland has arguably been hit harder than anywhere else in the world besides Iceland. In this article I’m going to discuss what has happened to Ireland and its economy and how the country is acting to try to fix the country’s system for the long term. I think in order to fully understand what has happened, it is important to start at the beginning and examine the economic boom that Ireland experienced that eventually led to the collapse of its banking system.
The economic boom in Ireland started in the early 1990’s. There were many reasons for this tremendous growth including a low corporate tax rate, low wages, EU membership, and a strong relationship between the work force and the government attracted numerous foreign investors. Large companies were attracted to this environment and started to move to Ireland which created thousands of jobs and new wealth. This wealth led the country to begin investing in itself and improving infrastructure, which only enhanced the success that the country had been experiencing. This boom lasted through most of 2001, when the country began to suffer the economic slowdown that hit the whole world. However, this would not last long, and as tourism began to pick up again so did a substantial increase in housing prices, and foreign firms became interested once again. The housing market grew extremely rapidly and this continued to create more jobs. As good as all of this was, and continued to be through 2007, history has taught us that every bubble will eventually burst. Ireland was no exception as everything started to go wrong at the same time.
The bigger they are, the taller they fall. I can’t think of a better way to describe what is currently happening to Ireland. It experienced unbelievable growth for over a decade and now it is about to fall further than it ever has before – into a state that is comparable to the Great Depression. The economy was doing so well and people were borrowing money at an insane pace. The banks were lending with very little regard for qualifications (we’ve heard that one before) and it was just a matter of time before things turned sour. The housing market was doing so well and new homes were sprouting up all over the country. Then, the global credit crisis hit and everything turned sour almost overnight. With how easily banks were lending money, things were quickly looking bad for the financial system.
Fearing that the banking system was about to collapse, Brian Lenihan, Ireland’s finance minister, guaranteed all bank deposits at the end of September last year. As if things couldn’t get worse, there was the debacle surrounding Anglo Irish Bank’s executives that forced the government to fully nationalize the bank. This was only the beginning of what was to come, as Lenihan has had no choice but to pump money into the nation’s largest lenders, Allied Irish (AIB) and Bank of Ireland (IRE) . There is also talk of fully nationalizing the nation’s banks as the only remaining option at this point. In terms of the economy, unemployment has risen to a staggering 11.4% in April and there are estimates of 2009 GDP decreasing by more than 8%. It is impossible to say when Ireland will hit the bottom, but it is going to be extremely tough for at least the rest of 2009 and mostly likely much longer.
So What’s Next
As you can see, the global financial crisis is indeed global. Not only have we been so strongly affected here in the United States, but it has been as bad, if not worse in other countries. Ireland has been scrambling worse than the US trying to find a solution to its ever growing problems. It is in a terrible recession and there is really no end in sight because of how quickly and how hard the country has fallen. On top of this, the government has tried everything from pumping money into the banks and is now talking about nationalizing all banks in an effort to save the country’s financial system. It is impossible to say when this will end, but Ireland could really use some luck at a time like this.