Ireland has suffered the most dramatic fall from grace in recent European history. How has this happened—and who is to blame?by John Murray Brown / December 15, 2010 / Leave a comment
Published in January 2011 issue of Prospect Magazine
More on Ireland in this month’s magazine:
Julian Gough on why the Irish should marry their daughters to the IMF
Colin Murphy on Irish migration
Steingrímur Sigfússon, Iceland’s finance minister, had been planning to visit Dublin on 1st December to deliver a lecture to students at Trinity College. The title of his paper was “Iceland and the International Monetary Fund: what lessons for Ireland?” By chance, the longstanding engagement happened to fall a few days after Ireland had agreed the terms of a humiliating €85bn bailout by the IMF and a 16-member eurozone group led by Germany, and including Britain, Sweden and Denmark. In the event, diplomatic sensitivities prevailed, and Sigfússon, clearly not wishing to add to Ireland’s trauma, cancelled his trip. Two years after Iceland’s crisis, Ireland faces a similar nightmare: its banks may collapse, and the government may be unable to make good on its loans from the rest of the world. A recent letter to the Irish Times joked darkly that the title of the EU anthem should be changed from “Ode to Joy” to “Owed to Germany.”
Irish disorientation has not been helped by the offer, in November, of financial help from Britain, the former colonial power—even though the £7bn put forward by Chancellor George Osborne was prompted by concerns that Irish banks could drag down their British counterparts. One Irish MP reported receiving texts from angry constituents warning him not to accept the “Queen’s shilling,” while a friend recently visiting her sister in England was surprised to be offered a discount at the checkout of one London store because she was Irish. “It was as if I needed a food parcel,” she says.
What went wrong? And who was to blame? Ireland’s crisis today is not only the fault of reckless bankers and greedy property developers over the long decade of the boom—although it is certainly that. It is also about politicians’ mishandling of the first crisis in late 2008, when the global credit crunch exposed the hollow finances of Irish lenders. That led to a mass withdrawal of deposits at Ireland’s third-largest bank, Anglo Irish. Two years on, and after a series of unprecedented and hugely controversial government interventions since then which have saddled Irish taxpayers with the bill for propping up the banks, there is still the threat of a run on deposits. “We went in a complete circle and the sum of the parts of our response to the crisis has brought us back to a deeper liquidity shock than when we started,” admits Pat Cox, former president of the European parliament. “That is some kind of perverse genius, which will certainly go down in monetary economics as a brilliant example of exactly what not to do.”