A Short History of the Celtic Tiger: From Boom to Bust
|This says it all!|
Brown (2004) points out that it was way back in 1977 that the seeds of our current problems were sown with the election of a Fianna Fáil government under the leadership of Jack Lynch when the party won its biggest ever election victory with a majority of twenty seats. The major reasons for its huge victory were the populist economic policies – abolition of rates on private dwellings, the replacement of motor tax on smaller cars by a flat-rate tax of £5, and increases in personal income tax allowances. In short, now that the people’s expectations had risen since the advent of the TV and with the consequent comparisons between standards of living on either side of the Irish Sea, this new government under Jack Lynch had little option but to borrow heavily on foreign markets. To add a darker and more ominous colour to this new borrowing trend, our debt was denominated in foreign currency, not in punts. Also labour costs were rising in line with those in England, and, coupled with an international oil crisis, this meant that we were gradually going to lose any independence of decision making with respect to monetary policy.
Undoubtedly our joining the EEC on January 1, 1973 was a turning point in the economic development of Ireland as it opened up so many more markets to our growing economy. This also ended our strait-jacket dependence on Great Britain. In a sense, Ireland could have been said to have developed an Oliver Twist-like attitude in coming to the European table and asking for more. Between the CAP and structural and cohesion funds we had much to benefit from being part of Europe – and so between 1973 and 1993 we were net receivers, often blithely unaware that some day we, too, would become net givers. To this extent, Máire Geoghegan-Quinn, the current European Commissioner for Research, Innovation and Science was correct when she opined in the early nineties that we Irish are “conditionally integrationist.” I quote this here as it portrays Ireland in a dependent light, looking selfishly to what we can get from membership of the EU rather than seeing ourselves in a more positive light as a nation which has much to give in our talents, creativity and culture to the rest of Europe. The fact that since NICE 2 (September 2002) we’re net contributors to the European Union, rather than silent receivers, should be seen as a mark of our coming of age as a modern European nation.
During the Ireland of the IDA period (1957-1986) the societal project had been that of modernisation which essentially meant the raising of living standards and employment rate to EU standards. In the period immediately following, that of the Ireland of the Software Specialist (1987-2007) (the era of the Celtic Tiger) this societal project was universalised into a quality of life for all the citizens of the island. We truly believed we were about to realise the cultural and economic dreams that were mere wild hopes in the minds of the State’s founding fathers. Nyberg (2011, p. i) makes the point that it was this buying into the myth of “a new and different world” that led the banks and authorities to relax “traditional values, analysis and rules.”
Where economic policy had been free trade and integration in the former of these two eras, that of the latter became adaptation to globalisation of the markets. While the symbolic event for the Ireland of the IDA was the building of the Ballymun Tower Blocks (1966) that of the era of the Software Specialist was the Sixth Irish EU Presidency (2004) when Ireland had seemingly come of age as an equal partner with her fellow Europeans on the world stage. Once again, all of this fed into the predominating culture of success and self-belief and into the myth of the Celtic Tiger.
During these two eras our industrial policy was export-led and multinational in the first instance and R & D intensive and networking-centered in the second. For two magical decades, Ireland seemed to have at last set aside its old greener Republican distractions of Civil War politics, and from this glorious period of calm, grew a true economic powerhouse – the Celtic Tiger – that also seemed to rival the rest of Europe in terms of economic growth and individual wealth. The great turnaround for Ireland came when successive governments moved towards a policy encouraging foreign investment and development. Taxes were cut and import duties were minimized making Ireland one of Europe’s most open economies. This approach worked wonders and seemingly overnight, factories were being built and massive housing projects were started. The building industry was allowed to spiral out of all control, and through poor or even no credit control measures which saw 100% mortgages become the norm, coupled with poor risk management policies, the Irish banks became excessively exposed to the property market. Hence, property values skyrocketed and newly-rich developers scrambled to bring the next grand project online.
And yet no one asked where was all the money for these wonderful and dreamlike projects, which were getting more grandiose all the time, coming from. Naturally, much of the money to undertake these elaborate enterprises was borrowed but no one – and especially not the banks providing the funds – worried about the viability of these wonderful projects. Indeed, they continued to lend out money with no due regard to risk or to the ability of the borrower to repay. The resultant bubble was due in part, then, to the main Irish banks fuelling a credit boom with relaxed lending in the context of what Professor Honohan, Governor of The Central Bank, called “complacent and permissive”  banking regulation.
Indeed, famously Seán Fitzpatrick, the now infamous chairman of Anglo Irish Bank was heard to opine on the airwaves that there was too much regulation of the banks and that the “light-touch” regulation policy encouraged by successive Fianna Fáil-led governments in financial institutions did not go far enough. The actions of many of these financial institutions were in fact illegal and corrupt. The Irish banks were lending money that they were in turn borrowing heavily from Europe. That either the ordinary Joe Citizen or the not-so-ordinary property speculator or entrepreneur might inevitably fail to meet their repayments sooner or later never appeared to dawn on those lost in the magic and delirium of the seemingly never-ending money merry-go-round.
In 2006, the then Taoiseach Bertie Ahern declared "the boom is getting boomier". This former Taoiseach played his part in inflating our economic bubble through his government's introduction of tax reliefs for developers and investors, encouragement of 'light touch' regulation of the financial sector, and through the inflation of the public sector and its pay bill to unsustainable levels. Be that as it may, there are many other culprits outside this one man, who, along with Seán Fitzpatrick, is an easy target and an all-too-obvious scapegoat. Apportioning blame is all too easy and can often descend to character assassination by route of “argumentum ad hominem.” To some extent, Brian Lenihan, is correct in stating that we all partied.
The day of reckoning for borrowing recklessly inevitably came. Through the night of Monday, September 29th, 2008, and into the early hours of Tuesday, September 30th, crisis-management talks with the CEOs and chairmen of the major banks took place, involving the Taoiseach, Brian Cowen, and the Minister for Finance, Brian Lenihan. Their purpose was to prevent the collapse of Anglo Irish Bank later that day – and possibly other banks later that week. It would prove to be the biggest financial gamble, and arguably the biggest policy decision, ever taken by an Irish government. The move in September 2008 to guarantee the banking system, covering both customer deposits and controversially the various banks’ own borrowings to a total of €440 billion, tied the future of the country and its finances to the survival of its banks. It has forced billions in losses – possibly up to 70 billion (but who knows the exact eventual figure?) – on Irish taxpayers. It has socialised the cost of decade-long misadventures of runaway banks whose managers and private shareholders enjoyed the spoils of bumper profits through the boom. The economist David McWilliams, one of the many people from whom Linehan got advice on the fateful night of the Bank Guarantee, reported that he hadn’t expected that the guarantee would extend to sub-prime debt. He said later: “I thought we’d do what Sweden and Switzerland did – which was a selective guarantee. The idea for the guarantee came from a bank I had worked at – the Swiss bank UBS, back in the early 90s. The Swedes did something similar a few months later in 1993. I remembered that that they’d done it and that it seemed to work.”  In short, Humpty Dumpty has had “a great fall” and our identity as a generation, in line with Mannheim’s definition given above, is forged by meeting this crisis and in attempting to put Humpty Dumpty “together again.” With this in mind we now turn to both the positive and negative impacts of our greatest financial crisis.
 Quoted Crotty, W. & Schmitt, D.E. (2002) Ireland on the World Stage, Pearson Education Ltd., Essex, U.K., p. 89. Ms Geoghegan-Quinn was then Minister of State for European Affairs and she made the comment in 1990.
 Quoted Matthew Clarke on http://www.thebubble.org.uk/politics/the-demise-of-the-celtic-tiger Accessed 7/05/2012
 Quoted in The Sunday Independent, December 04, 2011
http://www.independent.ie/opinion/analysis/the-dirty-dozen-the-12-men-who-together-destroyed-our-economy-2953404.html. Accessed 7/05/2012
 See footnote 3 above.
 David McWilliams - "Bank Guarantee Was A Bluff, Not A Policy": Frank Interview With Mediabite http://www.mediabite.org/article_The--Rock-Star--Economist_384381524.html. Accessed 9/05/2012.