Ireland’s Boom-Bust Cycles: The Elusive Search for a Balanced Development

Abstract

In the mid- to late 1990s Ireland for the first time began to attract international attention for what seemed a remarkable developmental breakthrough. Embracing the opportunities opened by globalization, it managed, through some options made by policy makers and with not a little luck, to create conditions that led to a 15-year economic boom, from 1993 to 2007, which saw employment expand dramatically, and average living standards rise to some of the highest levels in the European Union. Yet, this ‘Celtic Tiger’, as it came to be known both at home and abroad, collapsed suddenly in 2008 as the country entered into a crisis that, in the words of the International Monetary Fund (IMF) ‘matches episodes of the most severe economic distress in post-World War II history’ (IMF, 2009: 28). In late March 2011, the governor of the Central Bank of Ireland, Prof. Patrick Honohan, who is an academic expert on finance, described it as ‘one of the costliest banking crises in history’ (quoted in Carswell, 2011). As the full scale of sorting out its bankrupt banking system became obvious, the country’s deficit as a percentage of its GDP rose to 32 percent in 2010, a full ten times the deficit permitted by the European Union and a record for any country outside wartime. Meanwhile, the country experienced its deepest recession since independence in 1922: GDP declined by 3.5 percent in 2008, a further 7.6 percent in 2009, and 1 percent in 2010 while GNP, regarded as a more accurate measure of Irish growth since it excludes the extensive profits of multinational companies taken out of the economy, contracted by 3.5 percent in 2008, a further 10.7 percent in 2009 and 2.1 percent in 2010. Unemployment, which as recently as 2007 had been 4.4 percent of the labour force, had risen to almost 15 percent by mid-2011.