The debt crisis in Ireland

This paper takes a multidisciplinary approach to analyze the current debt crisis in Ireland. It briefly reviews Irish economic performance from 1980 to 2008 and in particular the Celtic Tiger years. The paper looks at changes in the Irish money supply and its contribution to the Irish housing bubble and the subsequent economic problems facing Ireland. An estimate of the negative wealth effect in Ireland since 2007 is made. Given that Ireland is a small open economy, a number of other factors which are both domestic and international are considered in an attempt to explain what has happened in Ireland, where might Ireland go from here and what lessons can be learnt. These factors include: the theory of political economics, the principal-agent problem, the theory of optimal currency areas, the Balassa Samuelson effect, the dynamics of a capitalist economy, neo-liberalism, European monetary integration, international bond markets and ‘insurance’ that was sold to cover a Eurozone breakup. The Irish culture is considered to differentiate Ireland from other EU countries, in particular, Portugal, Italy, Greece and Spain.

► The paper takes a multidisciplinary approach to analyze the current debt crisis in Ireland from a number of perspectives. ► It finds that poor management of the Irish money supply was the main contributing factor to both the boom and bust in Ireland. ► It estimates that Ireland has experienced wealth destruction equivalent to approximately six times its national income since 2007. ► It argues that a full understanding of the debt crisis is not possible unless all domestic and international factors are considered. ► The Irish culture is considered to differentiate Ireland from other EU countries, in particular, Portugal, Italy, Greece and Spain.