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An Irishman abroad tells it like it is !! 🙂
Fifteen years earlier, the export-led economies of East Asia, then at their apogee, were at a similar crossroads…and took the wrong turn. Tempted by foreign speculative capital knocking at the gate of the “East Asian Miracle,” the economies of the region liberalized their financial sectors. Hot money came flooding in, for investment not in industry or in agriculture but in real estate and the stock market. Overinvestment in real estate led to a collapse in property prices, which led to dislocations in the rest of the economy, which in turn led to panicky flight by foreign investors. In summer 1997, some $100 billion that had flowed into the East Asian economies in the period 1994-97 flowed out of the region. The end result of this toxic cocktail of hot money and volatile property was a three-year recession that brought an end to the East Asian Miracle …
Had Ireland’s leaders paid attention to the East Asian tragedy of the late 1990s, they would have been more careful about the dangers associated with financial liberalization and property development. They would have also avoided the second phase of the Asian growth process — illusory growth. How, instead, the Celtic Tiger followed in the footsteps of the Asian tigers is summed up cogently by The New York Times: “Before Ireland joined the euro, its banks tended to do business the old-fashioned way, financing their lending through the deposits they took in. Once in the euro zone, banks were suddenly able to borrow huge sums of money inexpensively on international markets with nearly no exchange rate risk, an activity that was barely regulated by policy makers. With easy access to these funds, banks like Anglo Irish lent huge amounts to prominent Irish developers, leading to a frenzy of overdevelopment.”
In the five years from 2003 to 2008, analyst David Smith points out that the net foreign borrowing of Irish banks increased from 10 to 60 percent of GDP. Lending standards were driven down to entice prospective homeowners, many with low or no credit history, much like the subprime phenomenon in the United States. And, as in the United States, regulators stood on the sidelines unwilling to take away the punch bowl, probably because so many of the top figures of the ruling party, Fianna Fáil, were tied to the bankers and developers.
Ireland’s finances were already rotten when the global financial crisis blew in from Wall Street in 2007-2008. The crisis simply exposed the decay. With Ireland’s lenders becoming jittery, the country’s finance minister guaranteed all debt and deposits in the six main Irish banks and financial institutions, effectively nationalizing the debt and bailing out the country’s banking elites. But that move did not inspire confidence that the Irish state would be able to meet its financial obligations, should foreign creditors call in their loans. Smith points out that the spread between the interest rate on Irish government bonds and that on German government bonds, regarded as Europe’s solid benchmark, rose from just 30 basis points in September 2008 to 284 basis points by March the following year.
The abrupt shut-off of the foreign financial tap triggered a disaster in the real economy. The GDP collapsed by three percent in 2008 and 10 percent in 2009. It is expected to shrink by 13.5 per cent in 2010. Unemployment, down to five percent in the middle of the decade, shot up to a Depression-level 13 percent. The amount of debt among Irish households and companies, according to Fintan O’Toole, is now the highest in the EU, with the average Irish citizen owing 37,000 euros at the start of 2010. That figure has risen several notches higher with the recent EU-IMF 85 billion euro bailout.
"But I will not let myself be reduced to silence."
