The Financial crisis 2008-2010 has created a whole new genre of books and

articles devoted to exploring the causes and solutions to the recession Ireland
finds itself in. The Irish commentators on the financial crisis focus on what is
special about the Irish crisis compared to what happened worldwide. These
commentators point to a number of factors that they believe cause the crisis. The
most common cause referred to is that Fianna Fail refused cool down the
property sector but rather they encouraged it. Some commentators go on to
blame the European regulation for the crisis. These would see membership of the
Euro, under the current regulatory regime, as one of the root causes. The
closeness of Fianna Fail to bankers and property developers is seen as unhealthy.
The wisdom of guaranteeing all bank liabilities is questioned to such an extent
that there is a consensus against the bailout.
David McWilliams writes books on economics for a popular audience. “Follow
the Money” was one the first books published about the crisis in 2009. Similar to
“The Bankers” by Shane Ross and “Who really runs Ireland” by Matt Cooper
McWilliams places the blame on corruption. Politicians and Business people
were too close to each other. So when the Banks came to the government at the
end of September 2008 the politicians helped the bankers. These authors
completely disbelieve the government account that the banks had to given state
aid because if they weren’t economic disaster would ensue. According to
McWilliams, Ross etc the bailout was done completely for the benefit of the
bankers. They see the bailout as corruption of capitalism because it means giving
state aid to failed enterprises.
McWilliams calls for Ireland’s withdrawal from the Euro. This controversial
because many believe that it would inflict tremendous damage on the economy
and would damage relationships with the EU. Shane Ross was against Euro
membership but he doesn’t call for withdrawal. Membership of the euro meant
that we no longer had control of interest rates. Low interest rates suitable for
Germany were not suited to Ireland whose economy was overheating. Europe
failed in duty to regulate the Euro members. European officials respond that
there were things Ireland could have done to cool down it’s economy by taxing
the property industry more.
Most authors say that political reform is necessary. The lack of national
politicians we are told is the problem. Fintan O Toole in his book the “Enough is
Enough” calls for Mixed Member Proportional representation. This would
provide “national” and local representatives at the same time. The national
political would ideally legislate in the countries interest and would not be driven
by the local concerns. Some political parties are promising to abolish the seanad
but this in turn has been derided by Political Scientists are mean populism.
Interview with Brian Cowen.

When Fianna Fail returned to government in 1997 you inherited a booming

economy. Would you accept now that Fianna Fail did nothing to cause and did a
lot to destroy prosperity?

In the first year of the new Millennium the Irish state was experiencing
extraordinary levels of growth. Employment was to 4% practically full
employment. The exchequer was over flowing with money. Fianna Fail and the
Progressive Democrats started spending. Do you now believe that government
spending at the time was wise?

Fianna Fail took Ireland into the Euro. Do you have any regrets about this

There were voices that argued against this at the time. Did you give sufficient
consideration to these arguments?

Fianna Fail signed away one the key powers that could have cooled an over
heating economy. Did you realise the difficulties that would entail?

It’s true that the EU envisioned other economic controls. But we did not change
our policies for the new situation. Would you accept that?

During the height of the boom you continued giving property based tax reliefs to
builders. Do you now agree that this was a catastrophic mistake.

Would you agree that the government that you were a part of was careless?
Observers have remarked that in your tenure as Finance minister you never once
when to ERSI for any kind of discussion. Could we fairly accuse you of
complacency?

One of the defining features of Fianna Fail during the Boom years was the Galway
tent. For many people in the media this was blatant cronyism. You abolished the
Galway tent. Did you ever take Bertie Ahern aside and say this wasn’t on?

Charlie McCreevey said one stage that if he had it (money) he would spend it. In
the midst of a massive boom he increased spending with no thought for the rainy
day. Shouldn’t the Fianna Fail have saved money in the boom in order to spend it
in the inevitable recession?

Would you agree that the government you were part of was in the grip of hubris.
You really did believe that a downturn was impossible. What made your
government so arrogant?

It was revealed recently that you played a game of golf with Sean Fitzpatrick in
the summer prior to the bank bailout. Do you continue to argue that business
matters weren’t discussed on that day?
The extent of the banking bailout has been criticised. Would you do the same
again if the situation arose?

Other European governments were shocked that Ireland unilaterally guaranteed

all bank liabilities. Shouldn’t you have consulted with European partners before
taking this action?

Do you still believe that Anglo-Irish bank was of systemic importance?

You and your ministers have often blamed the global economic recession. But
you allowed the property market to become over valued. Surely you should take
some of the blame?

Evaluation of sources
I located Fintan O Toole’s “Enough is Enough” because I heard it discussed on the
radio. It is journalist source but one from the quality end of the spectrum. Fintan
O Tools is a columnist for the Irish Times. He has been commenting on a Irish
affairs for over 20 years. He doesn’t claim any specific qualification. But he has
observed Irish political life as a reporter for the Irish Times. The information was
published in late 2010. The publisher Faber and Faber is mainly reputed for
publishing poetry. The book argues for expanded public services and is against
the influence of business on public life. It argues against the influence of the
Catholic Church on education. The author is culturally and politically on the
center left. The book has bibliography but it has not been peer reviewed. The
book is highbrow end of the scale. It is different from other books because it
forces on wider society. Its proposals for political reform are similar to those of
political scientists.

I located Europe’s shoddy attempt to vilify Ireland through Twitter. It is blog

article on the Daily Telegraph website. The author is the international Business
editor of the Telegraph. His qualifications are that he has been covering politics
and economics for decades. The information was published in January 2011 in
the United Kingdom. The Daily Telegraph has reputation as a conservative paper.
The source manifests a political bias against the EU. The EU’s actions are
described as shoddy. The article makes much of the Commissioner’s former
Maoism. It is implied that this is a bad thing. The source eing an article doesn’t
contain a bibliography. As it is a post on his personal blog I do not think was
reviewed. The article reflects the standard opinion of the conservative British
press towards Ireland’s financial crisis and the EU’s role in that crisis.

What went wrong in Ireland? is a scholarly note that attempts to explain the
causes of the Irish Financial crisis. It often mentioned in the media and by
politicians. Patrick Honohan is professional economist with experience of central
banking and university teaching. The article was published in 2009. It was
prepared for the World Bank. The article is economic analysis by a professional
economist. The source does not show any cultural or political bias. The source
was prepared for the World Bank so it would have the approval of that
organisation. The article has an authority that other sources do not have. Prof
Honahan is now the governor of the central bank. He has expertise the other
sources do not have.

Mind Map of What went wrong with Ireland.

Introduction Emergent from Unemployment, High Taxes Emigration,
Astonishing growth 1994-2000, Agricultural employment fell

Severe collapse GDP fell by 2% 2008

Twin crisis  Banking sector, Public finances,

Negative Credit availability, Rising Taxes

What went wrong  Hubris  EMU membership  False security

Exposure to world market  Vertical integration with multi-nation

Sharp decline in stirling  Domestic retail exposed,

Three reasons Ireland was badly effected

 A home grown banking crisis

 Loss of competitiveness
 Tax structure dependent on boom continuing

Two distinct growth phases

 True Celtic tiger up to 2000  Government spending restraint  Social
partnershipsuccessful punt devaluation EU structural funds

Second growth phase

 Growth continued. But the source shifted.  Property and construction boom.

 Wage restraint for income tax consessions were supported by construction

revenue.
 Competitiveness was eroded.

Poorly positioned for the global crash

 International pressures exacerbated by tax collapse
 Collapse of property bubble exacerbated effects of worldwide crisis on Irish
banks.

Fiscal Problems
 Collapse of Tax Revenues in 2008-09
 Caused by move to cyclically sensitive taxes

Social Partnership. Wage restraint bought by income tax reduction.

 Government was exposed to a downturn
 Policy makers lulled into a false sense of security
 International trend towards tax reductions

Total Tax revenues fell by 14% Cyclically sensitive taxes fell at 36%
Property Bubble
 Competitive pressure on Banks
Banks eased loan conditions  Two Thirds of loans in excess of 90%

 Undue reliance on banks internal risk models

 Hugh foreign bank borrowings 60% of GDP

Global crisis
Confidence dried up
 Anglo Irish was unable to secure funding
 Fearing contagion Government decided against wind up and went for
systematic bank guarantee
 Budgetary cost put Irish government bonds under pressure

NAMA
 Acquire banks development property portfolio of banks

Loss of wage competitiveness

 From 1986 to 2000 wage restraint helped generate and sustain an era of full
employment
 After 2000 wage competitiveness deteriorated. Employment sustained by
construction sector
 Public sector wages increased relative to private sector employment.

The subtle role of EMU membership

 Things went wrong around the time of EMU membership. Casual factor or a
coincidence
 Low interest rates and removal exchange rate risk facilitated the boom.
 Insensitivity of the exchange rate and interest rates to developments removed
external constraint.
Real interest rates were minus 1% 1998-2007 compared to 7% in ERM period
 Currency risk was removed. Banks were able to borrow heavily from abroad.
Risks were unnoticed by analysts.
 Policy antennae were not re tuned to take EMU membership into account.

Concluding remarks: Lessons

Due to hubris policy makers neglected to ensue wages didn’t go out of line
internationally.
 Recovery will depend on lowering cost of public services, retaining labour
market flexibility and international wage competitiveness
 Return to policy of the 1990s. Growth will be down 10% on pre crash
predictions. Government must be decisive in correcting public finances