Chuaigh Ár Lá – Debt of A Gaelsman: Ireland’s Sovereign Debt Crisis, National and International Responses

Croke, James | January 1, 2012

How did a small island nation on the periphery of Europe go from the pauper of the European Union, to a paragon of a market economy, and back to fiscal ruin within the space of twenty years? Ireland was the poorest nation in the European Economic Community (EEC) in 1988. In the late 1980’s and early 1990’s it undertook structural reforms to fundamentally reshape its economy, the result was a booming economy throughout the mid-to-late 1990’s and early 2000’s, primarily fueled by exports and foreign direct investment. Rather than continue on a sustained, but slower, growth path in the 2000’s, the Irish went on a credit binge that inflated domestic property prices to dizzying highs and resulted in a financial hangover, the likes of which had never been seen before in the Republic. This credit bubble went unchecked by regulators and, in fact, was actively encouraged by successive governments. Although asset bubbles may be inevitable, Ireland could avoid future fiscal crises by running a more counter-cyclical tax policy and adopting a rules-based approach to banking regulation. From a Europe-wide perspective, the EU should put teeth into enforcing compliance with the fiscal spirit of Stability and Growth Pact and should create an independent regulator to monitor systemic risk in European Union (EU) financial institutions to ensure that kinds of problems that arose in Ireland do not appear elsewhere in the EU.