There is an image of Ireland doing the rounds which has gone viral. The image is in the format of a classified advertisement. The item for sale is Ireland itself offering “76,000 km2 of floor space” to the buyer. The “vendors” are prepared to sell for 900 billion Euros or roughly $1.23 trillion.
All joking aside, Ireland is no longer worth that kind of money. The pretend asking price is exactly ten times Ireland’s debt which currently stands at $123 billion and continues to grow. It is now equivalent to one third of Ireland’s GDP. With Ireland still seen as a risky proposition and the bucket of money fast running out, the situation is about to get a lot worse for the Irish taxpayers. They may have to bail out their banks to the tune of $95 billion and will pay the price through a series of austerity budgets and the return of emigration. The bad times are back with a vengeance.
Poverty has been the normal situation for Ireland for much of its existence. Founded out of the barrel of a gun in 1921, the Irish State was the desperately poor relation of northern Europe. Its protracted independence battle from Britain left it penniless, its war neutrality cost it a place in the Marshall Plan and the economic illiteracy and conservative social attitudes of Ireland’s towering statesman Eamon de Valera encouraged mediocrity. In an infamous St Patrick’s Day speech to the nation de Valera’s vision of Irish life was “the romping of sturdy children, the contests of athletic youths and the laughter of comely maidens.”
But as the sturdy children, athletic youths and comely maidens grew into adulthood, they found an Ireland that had no place for them. Until the 1960s emigration was the only solution for most if they wanted a secure a financial future. Emigration was also an escape from a stultifying environment. An island off the coast of an island off the coast of Europe, Ireland was isolated culturally and financial from much of the European post-war boom in industry and ideas.
The Irish Catholic Church had enormous power and privilege in de Valera’s young state to the point where he allowed the archbishops to co-write the 1937 constitution. The Church’s conservative hierarchy held onto its power by ensuring new ideas were suppressed through censorship and criticism from the pulpit. Efforts to change the constitution in the 1980s mostly failed but the battles severely bruised the Church.
Europe would eventually come calling and change everything. Entry in the then-EEC in 1973 had a profound effect on Ireland coming as it did at the same time as the arrival of British satellite television across the country. Informed by overseas events and subsidised by European money the country rocked through waves of social revolution in the 1980s that bitterly divided populations. The constitutional referenda were mostly over sexual matters which had long been the preserve of the Catholic Church.
By the 1990s the Church's power was crumbling fast. Clerical scandals robbed them of their ability to preach down to the flock while the encroaching cultural influence of Britain and the US throughout the 1980s robbed them of respect in the young. Meanwhile an increasingly monied society was finding it no longer had the time nor need for spiritual aid.
The effect was revolutionary. A population of three million used to accepting power from the belt of a crosier suddenly found organised religion surplus to their requirements. As in many post-religious societies, mass materialism quickly rushed in to fill the void. Moral worth was now judged by the car people drove and the house they owned. Like the other PIIGS, all of whom emerged from strict Catholic or Orthodox societies, the Irish put their noses in the trough for 15 years of good times. As the economy improved through a series of one-off reforms, the nation went on a consumerist spending spree stimulating the economy even further. Long a net exporter of people, Ireland suddenly found itself an attractive destination for refugees desperate to get a job in this humming hive. The immigrants brought with them new ways and new ideas and further shook up a tightly homogenous society.
The original Irish boom was based on the take-off of low taxing hi-tech IT and pharmaceutical companies. But by 2000 those industries had plateaued. The boom was running on its own fuel. Construction became Ireland’s biggest industry. Ireland’s lax planning laws led to a building frenzy. The big profits available in property encouraged existing homeowners to gamble with their equity in what seemed like no-brainer easy money. The move to the euro made access easy to European markets. The Irish plunged into property in southern Europe and along with the equally cashed-up Russians and British became primary investors in places as diverse as Montenegro and the Canaries.
A few Cassandras such as Morgan Kelly (Professor of Economics at University College Dublin) predicted what would happen when the boom ended and the constructed house of cards collapsed. It wasn’t just private investors who were playing for high stakes. The Irish banks had made astronomical profits in the boom but got themselves in deep to foreign investors in the process. When the Global Financial Crisis hit, the cheap money those banks relied on dried up. With confidence killed at a stroke, businesses began to contract. The toxicity of many of the loans left the banks deep in debt with no new income to replenish them.
Desperate to avoid the loss of face of its major financial institutions going under, the Irish Government issued a bank guarantee as Governments did in US, Britain, and Australia. But unlike the other three English speaking counties, the Irish guarantee would lead to national insolvency. Three Irish banks (Anglo Irish, Allied Irish and Bank of Ireland) had hidden the extent of their bad debts from the Government at the time. Now the Government’s open-ended commitment to cover the bank losses far exceeds the fiscal capacity of the Irish State to pay.
The turning point in the crisis came in September when bank loans worth $75 billion due to the UK, German, and French banks matured. Despite being lied to by the banks, the Irish Government agreed to pay off the loans. It was accomplished with another loan, this time from the European Central Bank. Now Kelly is saying the next crisis will be mass home mortgage default. Like the “for sale ad”, Kelly goes for gallows humour. "After a sudden worsening in her condition, the Irish Patient has been moved into intensive care and put on artificial ventilation," he said. "While a hospital spokesman, Jean-Claude Trichet, tried to sound upbeat, there is no prospect that the Patient will recover."
The "hospital spokesman" Trichet is the French civil servant who currently heads up the ECB. The ease of access the euro provided was now the noose that threatened to leave the Irish economy to hang. Trichet would normally turn his Gallic nose up at the gauche goings-on of the Irish. But he has too has much to lose from the burgeoning debt situation. Ireland still owes a lot of money to French banks.
And like fellow terminally-ill patient Greece, the death of Ireland would put the health of the wider integrated European economy at risk if the crisis of confidence spread up the line to the larger economies. Ireland is relying on Trichet’s riches to pay for decades of crony capitalism. But the kindness of strangers will have a price. If mortgagees start to default on a widespread, Ireland could be ruled within five years by what Kelly calls “a hard right, anti-Europe, anti-Traveller party that will leave us nostalgic for the, usually, harmless buffoonery of Biffo, Inda, and their chums."