1. The Celtic Tiger and the biggest
banking-property crash in world:
Politics and Economics in Ireland
Oliver O’Connor
12 March 2012

2. Irish Economy – Profile
• GDP
– €156bn 2010; GNP, €128bn
– GDP (nominal) lost €33bn since 2006, huge -17%
– Bottomed out: growth now 1% - 3% by 2015?
– Ireland is relatively wealthy, even after the crash
– GDP per capita €34.6bn, GNP per capita €28.4bn
– Compares well internationally

3. European GDP per capita 2010 in PPP
EU 27 = 100
Source: Eurostat

4. GDP per capita PPP 2010
Assumed Irish GNP per capita 20% less than GDP per capita at 102 EU 27 = 100

5. Population Long Term Trend Up
6000
Population of Ireland 1950-2030
5000
4000
000s 3000
Actual
Forecast
2000
1000
0
1950
1960
1970
1980
1990
2000
2010
2020
2030
Source: OECD

6. What went wrong? A play in Five Parts
• 1987-93 – new economics, new politics, slow
improvement
• Arrival of ‘Celtic Tiger’ 1994-2000/01
• 2001-04: slowdown, dot com crash
• 2004-08: ‘Boom becomes boomier’;
loadsamoney
• 2008-10: Masssive crash, international crisis and
EU-IMF bailout

7. Some sources
Patrick Honohan – pre-Governor papers
http://www.tcd.ie/Economics/staff/phonohan/
European Commission
National Competitiveness Council
www.ncc.ie
National Treasury Management Agency
Post crash reports:
Governor Honohan
Regling Watson
Nyberg
On-going
Irisheconomy.ie
Karl Whelan; Kevin O’Rourke; Philip Lane; Colm McCarthy

8. House Prices

9. Investment in housing

10. Jobs in Construction 1990-2009

11. Relative earnings path

12. Loss of Price Competitiveness

13. Irish Competitiveness Index

14. Banks boom – aided from abroad
Domestic loans up by 147% in four years; reaching 210% of GNP
Domestic deposits up 70%
Shortfall of €176bn, financed externally in euro

15. Irish Banks – Loans mountain

16. Explosive growth
• ‘The domestic banking sector—made up of
those banks that had a majority exposure to
the domestic economy—
had, nevertheless, quadrupled its size in the
six years from 2003 to 2009, having grown
from €200 billion to €800 billion’
Gary O’Callaghan, Dubrovnik International University

17. Or put another way…
• “By early 2008, net foreign borrowing by Irish banks
had jumped to over 60 per cent of GDP from 10 per
cent in 2003.
• “Up to 2003, the property boom was financed without
significant recourse to foreign borrowing, but after
then the banks started to borrow heavily from abroad.
• “This was an effortless undertaking thanks to the
removal of currency risk and went essentially
unnoticed by analysts, the focus of policy attention
having shifted away entirely from balance of payments
concerns. “
– Honohan, 2009

18. Banks – Ireland and Eurozone

19. Government Money: Irish 10 Yr Bond
Spread over German Bund 1991-2010
Irish 10-Year Bond Spread over Germany since 1991
450
400
EMU
EMU
350
300
250
Basis Points
200
150
100
50
0
-50
Source: NTMA

20. Cheap money…
• “real interest rates 1998-2007 averaged minus
1 per cent, compared with over 7 per cent in
the ERM period (even excluding the crisis of
1992-3) and 3¾ in the floating rate period
between the two. The fall in nominal interest
rates was even steeper. “
– Honohan 2009

21. But not so cheap after all….
With nearly
two-thirds of
that cost for
Ireland
coming from
one bank
alone, Anglo
Irish
Sourced by NCB Stockbrokers

22. Fiscal policy – too loose or too dependent?
Honohan, 2009

23. Fiscal Balance 1995-2008

24. Correction 2002-04

25. Future of Government debt

26. Interest up but not to 1985 levels

27. Competitiveness Scorecard 2011
www.competitiveness.ie/media/Forfas060911_
Irelands_Competitiveness_Scorecard_Presentat
ion.pdf

28. Competitiveness Scorecard
www.competitiveness.ie/media/Forfas060911_
Irelands_Competitiveness_Scorecard_Presentat
ion.pdf

29. Dramatic changes in party support

30. Questions to discuss
• “Why didn’t someone see this coming?”
• Did euro membership cause the crash?
• Did Irish politics cause it?
• Did Irish public administration fail?
• What would have prevented it?
• Has euro membership made solving it harder?
• After the crash, what’s the economic future?
• What’s the political future?