What happened to Ireland

Ireland has been in the news recently but not in a good way: The government has been on the verge of bankruptcy, and the rest of Europe may have to bail them out. What happened to this country, which only a few years ago had a very dynamic economy? N.C. Cooperative Extension economist Mike Walden explains.

“In fact (Ireland) … was called the Celtic Tiger, because they really had strong economic growth and in some sense that strong growth led to their downfall. They had an enormous real-estate boom, similar to what we had in our country. But like us they had a big real-estate crash and a terrible recession. In fact, the relative size of their recession has been three times bigger than ours. Their banking system, like ours, was on the verge of collapse. And so the government rushed in, and some say a big mistake the government made was guaranteeing all bank investments. No one took any losses. And many analysts now say the government just couldn’t afford that. And their budget got out of control. Their deficit reached enormous heights relative to the size of their economy. And so they were really on the verge of a public bankruptcy.

“They are now engaged with the backing of the European community in a new austerity plan — very harsh, very harsh in terms of reductions in spending, public spending increases in public taxes. They do have some aid from the EC, but it is going to take Ireland a long, long time to get out of this mess.”