The Fall of the Celtic Tiger: Ireland and the Euro Debt Crisis

By 2000, Ireland had achieved a remarkable macroeconomic performance producing 10% economic growth, a budget surplus, and a very low debt to GDP ratio. Emigration had disappeared and there was significant immigration from Eastern Europe. By November 2010, economic growth was significantly negative, the budget deficit was out of control and the debt to GDP ratio had risen to over 100%. In an unprecedented development, Ireland was forced to apply for an emergency bail-out package from the Troika (European Commission, European Central Bank, and the International Monetary Fund). This book examines how the Celtic Tiger, a high growth performing economy, fell into a macroeconomic abyss. It is a story that shows how the Irish economy moved from a property market crisis to a banking crisis and fiscal crisis, and how these three crises produced a fourth crisis, the massive financial crisis of 2010. Against the backdrop of the newly created Eurozone, the book demonstrates the way in which a housing boom was transformed into a property market bubble through excessive credit creation. Accompanying the property market bubble buoyant property related taxes enabled a profligate government to over spend and under tax. Few, both in Ireland or Europe, recognised the danger signals because the prevailing economic ideology suggested that financial markets could self-regulate. The book analyses the roles of banks, builders, developers, regulators (the EU, the ECB, the Central Bank of Ireland, and the Irish Financial Regulator), economists, the media, and a property driven populace during the various unfolding stages of the downfall of the Celtic Tiger. It pays particular attention to the decisions to provide a highly controversial comprehensive guarantee for the covered Irish banks and the events that left the government with no alternative but to request a bail out. It considers throughout two questions: who or what was responsible for what happened and in what sense? Could actions have been taken at various stages to prevent the final recourse to the bail out? Finally, the book addresses the future of the Celtic Tiger and discusses the impact of measures to help resolve the current Euro debt crisis as well as the underlying lessons to be learned from this traumatic period in Ireland's economic and financial history.

Table of Contents:
Preface to the Paperback Edition Preface Introduction- The Irish Financial Wake Part I: Background 1: The Rise of the Celtic Tiger 2: Ideology and Financial Innovation 3: Asset Market Bubbles and Financial Crises Part II: The Causes of the Crisis 4: The Banks and the Property Market Bubble 5: The Failure of Financial Regulation 6: The Makings of a Fiscal Crisis 7: The Property-based Revenue Book and the Accompanying Expenditure Surge 8: The Climate of Public Opinion - Politicians, Economists, and the Media Part III: The Crash 9: The Storm Clouds Gather 10: The Guarantee Decision of 29 September 2008 11: From the Guarantee to the Bail Out Part IV: After the Crash 12: Coping with the Future 13: Conclusions Appendix A: The Views of the IMF and the OECD in the Period Leading Up to Ireland's Financial Crisis Appendix B: Interview with the Governor of the Central Bank of Ireland, 18 November 2010 Appendix C: IMF Assistance to Ireland- A Hypothetical Scenario

About the Author :
Donal Donovan is a Member of the Irish Fiscal Advisory Council, Adjunct Professor at the University of Limerick, and Visiting Lecturer at Trinity College Dublin. He is a former deputy director at the International Monetary Fund with considerable experience in the area of financial crises. He has advised in the preparation of two major reports on the Irish financial crisis. He is a member of the newly appointed Fiscal Advisory Council of Ireland. Antoin E. Murphy is Professor Emeritus of Trinity College Dublin. He is the author of three books published by Oxford University Press. He is an expert in the area of the history of economic thought and has a deep historical knowledge on asset market bubbles and financial crises.

Review :
`An important new book ... Donovan and Murphy represent the strength and breadth of contemporary Irish economics ... Drawing on financial history, Donovan and Murphy show that Ireland is hardly the first society to get caught up in the idea that innovation and endlessly inflating asset prices are sure signs of success ... This analysis of what was ultimately responsible for the Irish crisis is of major significance because it urges a different cure from the ones that are usually offered' Felix Martin, New Statesman `A fascinating book ... an accessible, balanced and independent analysis.' Sunday Business Post `Required reading.' Irish Independent `An excellent guide to the demise of the Celtic Tiger.' The Financial Times