Like much of the world, the 2008 financial crisis greatly affected Ireland and its economy. Employment levels were at their lowest, only being surpassed by the Great Depression of the 1930s. To put into context, one in every seven workers were unemployed by the end of 2010. However, after a period of economic hardship and difficulty, the country’s economy began to grow again, reaching almost full employment in 2017. The recovery from unemployment being just over 15% in 2011 to being less than 1% in 2017 has been widely credited to the partnership between the Irish government, the International Monetary Fund, and the European Union.
Before the recession hit, Ireland was one of the most prosperous countries in the EU. From 1987 to 2007, they had grown from being one of the poorest countries in the EU to one of the fastest-growing economies. This was a product of many factors such as low corporate taxes and a young, well-educated workforce. Having cultivated a business-friendly environment, the country became an attractive site for large corporations such as Coca-Cola, pharmaceutical companies, and internet companies such as Facebook. Hundreds of thousands of jobs were being generated, and immigrants were moving to Ireland. The country was given the nickname, ‘Celtic Tiger’, for being such a rapidly growing economy. This long period of growth was met with rising incomes and cheap credit. In part, this was due to Ireland’s adoption of the Euro in 2002. Because of this, by 2006, the value of property and real estate quadrupled, leading to higher incomes and revenues for many people, including the government. Lending and borrowing were at a high, with people buying multiple properties to let at the same time, loans were being paid out to individuals looking to buy property across Ireland, and homebuyers were taking higher debts relative to their income. This lending expanded the banks’ assets to five times the country’s GDP.
However, as the adage goes, whatever goes up, must go down. This period of growth slowed down in 2007, around the same time when the global economy began to step into the recession. The high demand for property had cooled significantly, and prices began to fall. In 2006, construction accounted for more than 12% of employment. As the county was beginning to face hard times, construction was stopped, leaving many people unemployed. This led to ‘ghost estates’, as the country was filled with unfinished construction projects. To add fuel to the fire, liquidity in the county was drying up, especially the money that was borrowed from overseas investors.
As the recession came to full size, on the 30th of September 2008, the government guaranteed the liabilities of the six major banks of Ireland. This included giving them 30% of the country’s GDP, 46 billion euros, and nationalising two of them. Not only was Ireland facing the Great Recession, but they were also facing the Post-2008 Irish Banking crisis. This crisis was triggered by the recession, where several Irish financial institutions faced possible collapse due to insolvency which is the state of being unable to pay the debts. The Irish government gave out a 64 billion euro bank bailout, deepening the recession in the country. It came to the point where the country’s banks were being kept alive by emergency loans from the European central bank. Worsening the situation, every day gone past made investors less certain about the creditworthiness of the government and the economy.
In November 2010, the Irish government approached the IMF and the EU to help. A ‘troika’ of experts from the IMF, the European Commission, and the European central bank were sent to help fix the crisis. The IMF and the EU provided a total of 67.5 billion euros to the country, and they were to be paid out over the following three years. The primary focus of the institutions was to get the banking systems working again, and restore the health of the market. This was carried out through three stages. The first stage was to identify the banks that remained viable and to restore them to health. Secondly, the experts would then recapitalise the banks, meaning they would provide them with more capital, replace their debt with stock, and strongly encourage them to reply on deposit inflows and market-based funding. The final stage was to strengthen the supervision of the banks and introduce a bank resolution framework.
On the 27th of July 2016, the IMF analysed the progress and difference in the Irish economy, stating that its rebound was exceptional. Their GDP had been growing successfully, as well as domestic demand and solid export growth.
By Nitya K
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