Ireland's boom ends – with a vengeance

For nearly a decade, Ireland enjoyed a steady rise to one of the world’s hottest economies. In just a few short months, though, the nation has cooled to a near freezing-point. And with each passing day, the situation grows more dire.

Iconic native businesses, like Waterford Crystal, have shut up shop. Multinationals, such as Dell, are relocating to low-wage economies in eastern Europe. Banks are being raided and taken over by the government.

Ireland’s downfall is proving to be as dramatic as its recent rise. Not long ago, it was a backwater languishing on the fringes of Europe, but Ireland’s educated and English-speaking workforce and low tax rates transformed it into a powerhouse that acted as a bridge between the United States and markets in the European Union. Until last year, the country enjoyed a decade of near continuous economic growth, earning it the nickname “the Celtic Tiger.”

As the economy grew, house construction boomed, bringing with it an overheated property market. Banks responded with easy mortgages. Personal debt ballooned. Now that finance has dried up, the construction sector has atrophied, and jobs are starting to be lost across the economy.

“The official forecast is for a 6 percent decline in growth,” says Anton Murphy, economist at Dublin’s Trinity College. “I think it will be bigger than that.”

As the people of Iceland have already discovered, the winds of recession blow hardest in countries with small populations and narrow economic bases.

Professor Murphy, who thinks the economy will eventually recover, blames the problem on exuberance in the property market: “Standards of living went up in the 1990s and people felt that the way to become really wealthy was to start exchanging property. There was a time when up to 75 percent of bank lending was in property.”

The political fallout from the country’s decline looks to be severe. Fianna Fáil, Ireland’s largest party, has seen a massive decline in popularity since the onset of the recession. The party had been credited with Ireland’s economic growth – it is now being blamed for the fall and has plunged to third place in the polls.

“Fianna Fáil has destroyed the Irish economy,” says Tony Doody, a small-business owner and landlord in Dublin. “The world economy can’t be ignored, but they could have stopped the Irish economy from heating up.”

Outrage over the government’s handling of the crisis is growing, and protests are becoming more common. Last week, Dublin streets turned blue as an estimated 1,000 police officers – officially banned from striking – rallied to express their anger at the country’s economic policies and a sharp fall in the standard of living.

Public employees, including police, teachers, and nurses, complain that they are being asked to take a drop in living standards they can ill afford. Police officers starting their careers could lose $100 of pay each week because of the pension levy, according to a spokesperson for Ireland’s policing union. “It’s asking lower-paid workers to pay a disproportionate cost.”

It’s not just the police who are restless. The march follows a demonstration several days earlier of more than 120,000 public-and private-sector workers who demanded an end to austerity measures.

A massive public transport strike was recently called off just before a major rugby game was scheduled with England, but other major public-and private-sector unions are set to vote on possible strikes in coming days and weeks.

Leftist parties gain wide support

The financial sector, meanwhile, lurches from scandal to scandal. The government promised to guarantee all deposits in Irish banks, but public confidence did not return. Anglo Irish Bank, a key player during the Celtic Tiger years, was recently taken into government ownership amid an €87 million loans debacle.

Ireland’s two largest financial institutions, Bank of Ireland and Allied Irish Banks, have been recapitalized with
€7 billion, angering many, who object to being told to tighten their belts while public money is poured into banks.

Speaking to the senate last week, Independent Sen. Shane Ross said that the country stands at a precipice: “Nobody should be in any doubt that billions of euro left this country for overseas destinations last week. Presumably billions of euro are still leaving as panic is beginning to occur in the money and currency markets.”

The crisis is pointing to a realignment of Irish politics. While some countries, notably Britain, are concerned about a shift to the hard right, Ireland seems to be experiencing the opposite: Ireland’s Labor Party has experienced a rise in popularity, with the latest polls showing a record rise to 24 percent support.

Sinn Féin, the socialist-leaning republican party with links to the now disarmed IRA, is also expecting to capitalize on the discontent: “The recession in Ireland has highlighted the folly of the right-wing policies implemented by successive Fianna Fáil governments,” says Irish Parliament member Arthur Morgan, who is also Sinn Féin’s finance spokesman.

Speaking at the party’s annual conference on Saturday, leader Gerry Adams called for Irish politics to realign leftward to defeat what he described as the corruption of Fianna Fáil.

Ruling party clings to power

The turmoil is not going unnoticed in government circles. Speaking on Irish radio last week, Green Party leader and environment minister John Gormley said he would not rule out the crisis measure of an all-party government of national unity, but he added that he thought the move would be unlikely at this stage.

An emergency budget accompanied by a call to patriotism and “national duty,” rushed through by the government in October 2008, was met with fury. Austerity measures, such as cuts to Ireland’s multiyear project to improve its aging infrastructure, and the removal of the right to free medical care for all citizens over age 75, were met with public outcry.