Ireland Financial Crisis Batina EconS Trevor Clarkson Brennan Smith Eve Franklin Bradley Pickett

Ireland’s Two Jurisdictions Republic of Ireland Sovereign state Also known as Ireland 26 counties Northern Ireland Province/region of the UK 6 counties

Ireland’s Government Parliamentary constitutional republic Bicameral Referred to as the Oireachtas Oireachtas composed of: The President (Primarily a figurehead) Two houses of the Oireachtas – Senate and House of Representatives

The President President: Michael D. Higgins (November Present) President elected for a term of seven years by popular vote (eligible for a second term). Appoints prime minister from within House of Representatives Prime Minister: Enda Kenny (March Present) Considered the Head of Government

Two Houses of Oireachtas Senate - "Seanad Eireann” (60 seats) 49 elected by universities 11 nominated by prime minister Members serve five-year terms House of Representatives - "Dail Eireann (166 seats) Members elected by popular vote on basis of proportional representation Five-year terms

Central Bank of Ireland The Republic of Ireland uses the Euro Ireland joined the EU in 1973 One of the first-wave countries to adopt the euro on January 1st, 1999 The Central Bank of Ireland is the issuer of currency for the European Central Bank It does not have independent power since it is under the EU Policy is made by the EU central bank

Ireland’s Economic History 1970s Government responded with policies put in place to: Boost productivity Reduce deficit Improve education Stimulate foreign investment Led to the Celtic Tiger Era European neighbors outperforming Ireland: Slow economic growth Stagflation Unemployment rate (10%) Debt-to-GDP ratio (110%)

Celtic Tiger Era Ireland began outpacing EU because of government policies and economic advantages: Favorable demographics High productivity Low corporate tax rates 1990 – 2000

Celtic Tiger Era By early 2000s, Ireland’s economy seemed strong High productivity and low corporate tax rates increased foreign investment Unemployment – 4% Increased immigration migrants per 1000 citizens 3 rd highest immigration rate in EU

Pre-Crisis Issues Condition of economy worsened starting 2002: Labor productivity no longer increasing High inflation GDP growth became increasingly related to housing market Revenue primarily came from housing market Provided a deceptively narrow tax base Irish government increased public expenditures throughout this time

How the Bubble Began Irish housing market driven by increased demand for home loans and high immigration 13% of Irish workforce was related to construction Further encouraged by public spending Financial integration gave Irish banks greater access to short-term lending – Wholesale money markets Supplied funds for housing market loans with increasingly risky lending practices

The Irish Housing Bubble Irish housing prices peaked simultaneously with British and US markets International credit markets froze Irish banks unable to generate capital to fulfill demand for loans Irish housing market crashed

The Irish Housing Bubble

Fall of the British Pound 2008 – British pound falls in value 80.4% of Irish GDP generated through the export of goods and services in 2008 The Irish retail industry struggled People chose to purchase cheaper goods in UK

Economic Impacts September of 2008 – Declines in consumer confidence caused bank runs Government admits banking sector was struggling and initiated policy changes

Economic Impacts Unemployment jumped to 10.02% First significant increase in 15 years Tax revenues began declining New home completion fell First time since late 80s Increases in Government Debt 2008: €79.6 Billion Debt-to-GDP Ratio: 44.2% 2014: € Billion Debt-to-GDP Ratio: %

Economic Impacts

Construction projects abandoned Distrust in banks after Anglo Irish Bank controversy

Initial Response, Blanket guarantee of wide range of loans to banking system €64 billion (40% national GDP) over a two year period Added more debt to a large national deficit Added debt increased yield rates for Irish government bonds Estimates might have been off because of uncertainty and lack of information

Initial Response, Established National Asset Management agency (NAMA) Took on bad loans from banks at a discounted rate and issued government bonds in return Increase in capitalization allowed banks repay their own debt Forced banks to recognize bad assets early on

Financial Assistance Package Nov Rates on government bonds reached unsustainable 9% EU, ECB, and IMF allocated €85 billion to Ireland. (European Commission, 2012)

Financial Assistance Package Package also required Irish government to implement program provided by the EU, ECB and IMF The program consisted of various financial strategies, fiscal consolidation and structural reform

Financial Assistance Package The Program consisted of three main elements: 1.A financial sector strategy aiming for a smaller, better funded banking sector 2.Fiscal consolidation putting public finances on a sustainable path 3.Structural reform agenda to promote competitiveness and strengthen the economy’s growth potential

Assistance Package Program 1.A financial sector strategy aiming for a smaller, better funded banking sector Recapitalization of the banking system Deleveraging of the banks balance sheets 2.Fiscal consolidation putting public finances on a sustainable path Annual benchmarks for deficit reduction to promote long term growth 3.Structural reform to promote competitiveness and strengthen the economy’s growth potential Reform labor market agreements Encourage more competition in sheltered sectors (legal professions) to bring down costs

Results Establishment of NAMA allowed transfer of bad debt from banks balance sheets Was instrumental in allowing recovery Forced recognition of bad debt Recapitalization of banks added to large budget deficit, and a resulting increase in the yield rates of government bonds Implementation of program from EC, ECB and IMF allowed for economic recovery by 2013

References "Central Bank of Ireland - Home." Central Bank of Ireland - Home. N.p., n.d. Web. 22 Apr European Commission. (2012, June 12). Ireland's economic crisis: How did it happen and what is being done about it? Retrieved from ec.europa.eu. "Government of Ireland Facts." Government of Ireland Facts. N.p., n.d. Web. 22 Apr "Ireland and the Euro." - European Commission. N.p., n.d. Web. 22 Apr "Money in Ireland." Ireland.com. N.p., n.d. Web. 22 Apr Schoenmaker, D. (2015, January 12). Stabilizing and Healing the Irish Bankign System: Policy Lessions. Retrieved from imf.org