• Email
  • Single Page
  • Print

Ireland: The Rise & the Crash

jack_2-111110.jpg
Niall Carson/AP Images
Irish Prime Minister Bertie Ahern announcing his resignation, Dublin, April 2, 2008

The Irish Model of Development, the Irish Economic Miracle, El Tigre Celta: political parties in nation-states as different as Latvia and Trinidad saw it as a possible future. Ahern quit as taoiseach in May 2008, his reputation by now mired in allegations of personal corruption. A year earlier he had proposed raising his salary to €310,000 a year, which by O’Toole’s calculation would have made him the best-paid politician in the democratic world. Now he found a new career as an evangelist for the Irish strategy. Paying audiences in Honduras, Korea, and Ecuador heard him describe an economic model that could heal national misfortune, irrespective of time and place. Ireland, in O’Toole’s words, offered “empirical proof that the way forward for everyone was extreme economic globalisation, low personal and corporate taxes, ‘business-friendly’ government and light regulation.” It was a compound that, according to its devotees, could transcend history and geography.

By 2008, even before the fall of Lehman Brothers, it was clear inside the Irish government that the country’s banking system would be lucky to survive its overexposure to the property market; too many loans were turning bad. The political elite, however, persisted in the belief that Ireland’s alchemical economy was robust (only in August of last year did Ahern’s agents, the Washington Speakers Bureau, drop the “Celtic Tiger” speech from his portfolio). O’Toole uses the phrase “unknown knowns” to describe an Irish cast of mind that distances itself from facts it knows to be true but “does not wish to process.” So it was with the property bubble and the bad loans, just as it had been for many more years with corruption and the evasion of laws and regulations. No matter how “voraciously corrupt” (O’Toole’s description of an earlier taoiseach, the late Charles Haughey), it was hard for a politician or businessman to discredit himself completely.

One of many exemplary episodes recounted by O’Toole concerns the Bailey brothers, Tom and Mick, who rose to become among the country’s largest landowners and developers. They admitted systematic tax evasion and eventually paid €22 million in settlement; a judicial inquiry found that Mick Bailey had been directly involved in the bribery of politicians and officials to persuade them to rezone farmland for development, and of giving “false evidence” to the inquiry. Yet the brothers suffered no sanctions, continued to receive big loans from banks, and still mingled freely with Bertie Ahern and his government colleagues inside the taoiseach‘s hospitality tent at the Galway Races.

Later, attempting to explain the origins of the banking crisis, finance minister Lenihan described it as the problem of a small country “with too many incestuous relationships.” Ahern chose a choir-boy innocence as his mode of explanation. Asked in a television studio why it was that he had appointed so many acquaintances to public boards in Dublin, he replied: “I appointed them because they were my friends, not because of anything they had given me….”

Even the strongest-willed and most austere regulator found this environment challenging. “The lines between thievery and patriotism, between private advantage and the national interest, became impossibly blurred,” O’Toole writes. “And if you were a public servant…you were patrolling a minefield.” To Seán FitzPatrick, chairman of the Anglo Irish Bank, regulation was a “corporate McCarthyism [that] shouldn’t be tolerated.” Unregulated, or insufficiently inspected, FitzPatrick’s bank secretly lent him €84 million to invest in property speculation, which was, after all, the method by which the bank itself had recklessly grown its loan book from €15.1 billion in 2001 to nearly €100 billion in early 2008. But the property assets that secured these loans had now shriveled in value and by Christmas that year Anglo Irish’s shares were almost worthless. No amount of brazen share manipulation could save Anglo Irish and it was nationalized soon after, supplying €28 billion of the €77 billion in loans that were assumed by the newly created National Asset Management Agency, the state’s “bad bank.”

By O’Toole’s reckoning, preventing the bank’s collapse cost the Irish taxpayer €30 billion—equivalent to Ireland’s total tax revenue for 2009—but already this figure looks too conservative. When Finance Minister Lenihan announced his further bailout on September 30—“Black Thursday” said the Dublin newspaper placards—the government said that it was prepared to fund Anglo Irish up to as much as €34.3 billion. When other bank rescues are included, the total cost to Irish taxpayers will be somewhere between €45 and €50 billion and Ireland’s budget deficit will rise from 12 to 32 percent of GDP. “This [bailout] brings the crisis to a closure,” Lenihan said, repeating his government’s ambition to reduce the deficit to 4 percent of GDP by 2014. That would mean further job losses and wage cuts and the kind of private misery that is so hard to quantify in percentages or can be easily measured by Fitch, Moody’s, and Standard & Poor’s (but out of which, surprisingly, economic recovery is expected to come).

Ireland can appraise the legacy of its Celtic Tiger years in many ways: by its empty houses; by its inept suburbanization of so much countryside; by an unemployment rate of nearly 14 percent; by a budget deficit that per capita is the highest in the European Union; by cuts in public spending that this year will shrink welfare benefits by 4 to 10 percent and wages in the public sector by 5 to 15 percent; by the fact that emigration is returning as the best means of finding opportunity.

The voices of international finance like to praise the Irish government for its single-minded approach to deficit reduction—in the European debt crisis, Ireland is the good boy and Greece the bad—but the Irish themselves, survivors in the wreckage, tend not to take such a dispassionate view. And how could they? Outside Ireland, the flaws of financial capitalism have left people angry everywhere, but confusion tends to dissipate their outrage. We understand the simple notions—bankers make far too much money—but a further search for the guilty hits barriers to the ordinary taxpayer’s comprehension labeled “derivatives” or “credit default swaps.” The causes of our distress can seem abstract and ineffable: “the system we live under.”

Not so to the Irish, who know that theirs was largely a homemade crisis and that it stemmed from a combination of folly and crooked schemes straightforward enough for a child to understand. The “stupidity and corruption ” in O’Toole’s subtitle are fully justified by his account—it’s hard, indeed, to think that any other words would do. O’Toole writes as an angry citizen, a fine satirist, and an energetic and inquiring journalist, and the result is a biting polemic studded with jewels of nearly incredible fact. He makes things clear, and sometimes he makes them funny too: the comedy of greed was very apparent in the boom years, when the state managed somehow to subsidize even the private yachts of the rich. But throughout his narrative he is trying to answer a question: What was it about Ireland that made it prone to such a singular disaster?

O’Toole divides Ireland’s recent economic history into two periods: a period of controlled (some might say rational) growth between 1988 and 1997 and then the madcap Celtic Tiger years that ended in collapse. Until the 1980s, Ireland had a miserable record of economic underperformance, unparalleled by any other country in Europe, which made it the despair of its people; no other European country, wrote the Irish historian John Joseph Lee, recorded so slow a rate of growth of national income in the twentieth century. It was the more prosperous parts of Europe, however, that provided Ireland’s first way forward. The European Union classified the entire country as a disadvantaged area and poured in money from its regional and structural funds—nearly €11 billion between 1987 and 1998—which O’Toole describes, rightly, as the kind of “classic big government interventionism” that the Celtic Tiger era affected to despise.

The Irish, meanwhile, were intervening themselves. Their government brokered a social partnership between bosses and trade unions and invested heavily in higher education, so that today more than 40 percent of the population aged twenty-five to thirty-four has completed “third-level” (university or equivalent) education, the second-highest rate in the EU. At a time of a prolonged global growth and American investment overseas, Ireland found itself lucky in other ways. Decades of emigration had left it with a preponderance of young people. It had no inheritance of heavy industry—no steel works or mines to close or subsidize. Feminism arrived, with effects on both the birth rate and the workplace.

The peace process was meanwhile gathering strength in Northern Ireland—the Provisional IRA declared its cease-fire in 1994—and the Catholic Church was losing its grip on morals and behavior. Society grew more secular, open, and tolerant. Gradually, Ireland appeared to the outside investor as a small, hospitable Anglophone country with an educated workforce and relatively low wages. Gross domestic product per capita, which had been two thirds of the EU average in 1986, achieved parity with the rest of Europe in 1997 and rose above Britain’s in 1999. By the end of the century, every Viagra tablet made by Pfizer came out of County Cork and Ireland exported more computer software than any other country. O’Toole looks back fondly on this time: “The pall of failure that had hung over the Irish state for most of its independent existence seemed to have been blown away for ever.” He also sees it as a lost opportunity. When Ahern’s Fianna Fáil government came to power in 1997, Ireland had an “optimistic, confident” population facing “incredibly favorable global conditions.”

The new government, however, believed it had discovered a quicker-acting formula for wealth creation: tax cuts to stimulate consumption, property to replace manufacturing as the source of wealth, Dublin to become a tax haven for businesses seeking to avoid the more rigorous regimes of London and New York. Ireland turned away from making and exporting goods as the source of its new well-being toward the evanescent world of money and debt. On the one hand, Dublin became the single largest location outside the US for the declared pre-tax profits of American firms. On the other, Ireland’s balance of payment figures slid into the red. “Being prosperous would be replaced by feeling rich” is how O’Toole memorably captures the hidden agenda—hidden, perhaps, even from its initiators. Ireland was far from the only country to embrace it, but by O’Toole’s argument the other countries that did (including the UK) had longer and more robust traditions of relatively clean governance and civic behavior.

Thus the ground was laid for what O’Toole calls “a lethal cocktail of global ideology and Irish habits”—habits or attitudes, that is, born during the unhappiest years of Irish history. These “nineteenth-century revenants” included a primitive land hunger, a political system inspired by the Irish-Americans of Tammany Hall, subversive attitudes to authority born under British rule, and heroic powers of denial (“the unknown knowns”). Revelations of cruelty and hypocrisy had ended the authority of the Catholic Church, but no civic morality had been put in its place and memories of its old instructions, or lack of them, remained. As O’Toole puts it, “Masturbation was a much more serious sin than tax evasion.”

He concludes of the Celtic Tiger:

It was a little too good to be true that Ireland could go from the pre-modern to the post-modern without ever fully creating the structures and habits of a modern democracy. Large chunks of classic democracy were missing—the shift from religious authority to public and civic morality; the idea that the state should operate objectively and impersonally rather than as a private network of mutual obligations; the notion of the law as a universal and neutral check on everyone’s behaviour, whatever their status…. Plonking a hyper-charged globalised economy on top of such an underdeveloped system of political governance and public morality was always likely to create an unbearable strain.

The dead beast, in short, was the price Ireland paid for its haste and greed. All across the country empty houses stand as its memorial, waiting among the poor fields for tenants and new beginnings.

  • Email
  • Single Page
  • Print