This small nation presents the global financial crisis in microcosm
Anyone who remembers the Dublin of the 1960s, when Ireland had barely emerged from its decades of self-inflicted penury, will look about him in the city of today and ask, “Crisis? What crisis?”
True, it is not difficult to find shiny new offices standing empty of tenants; cranes motionless by the skeletons of half-completed buildings; whole estates of new houses that have no buyers. Shops hope to attract customers by discounting goods; restaurants in which it was once difficult to find a table are closing. But still the city is far from those grim and grimy days, when nothing seemed to have been cleaned for decades, Georgian buildings had fallen into disrepair, and the food was monotonous, tasteless, and overcooked. The pubs were better in those days, or at least more entertaining, for smokers were still welcome and there were no flat-screen televisions relaying sporting non-events like political propaganda in a totalitarian state to dampen the conversation; but one sensed that pubs were lively because the rest of life was not.
Whatever else may happen to Ireland as a result of its present economic crisis, it will not return to what it was. No omelette was ever turned back into eggs just because the dish didn’t turn out the way the cook wanted. Ireland has changed from the intensely inward-looking place I knew into one of the most outward-looking countries in Europe. A foreigner was once a comparatively rare bird in Dublin; now you can hear every language under the sun in the streets, even after many immigrants have gone home and young Irishmen are once again thinking of emigration. The land of bacon and cabbage is no more. The archbishop of Dublin no longer makes politicians quake at the knees, and never will again. History does not repeat itself, at least not in such detail.
The transformation of Ireland came in two phases, the first healthy and sane, the second fevered and mad. It is the second phase, not surprisingly, that is at the root of the current crisis.
For about a decade, Ireland enjoyed spectacular but nevertheless sound and real growth. Its low corporate-tax rates attracted more American investment than any other country in Europe, and much other foreign investment as well. Its labor was competitively priced, and also well educated. Here it is worth mentioning the work of the much-reviled Christian Brothers and other religious orders, forever tainted by the child-abuse scandals that have virtually entombed the Irish Church.
Whatever else might be said about the Christian Brothers (and other orders), they insisted with something approaching fanaticism on getting the best academically out of their charges. They were often harshest precisely towards the best and the brightest, insisting that they learn as much as possible and not accepting any excuses for academic backsliding. Their motives were mixed. They understood, as their charges could not, that education was a ticket out of poverty; but they were also nationalists and religiously inspired, wanting to prove that the Catholic Irish, after generations of denigration and contempt, could be as good as, and better than, the Protestant English. So when, at long last, Ireland gave up its goal of autarky, it had a population and a diaspora well prepared to take advantage of the new conditions. The irony for the religious orders was that the new society for which they had prepared so much of the ground would comprehensively reject them, with all the intergenerational fury of a son towards a father.
Real output rose very fast; Ireland paid its way and almost every economic indicator was to the good. The flow of people reversed; the Emerald Isle was no longer just a mythical trope in the minds of Irish Americans, but a real place, with real economic opportunities for real Irishmen. So good were the times, indeed, that within a few years a tenth of the population were non-Irish immigrants.
But then the pursuit of real wealth changed gradually into the pursuit of fool’s gold. Several people told me that the Irish were particularly susceptible to a property bubble because of their agelong preoccupation with the possession of land (the natural psychological result of dispossession), powerfully illustrated in such films as The Field. Underneath the surface of a thoroughly modern training in electronics or financial services, there beat the heart of a landless peasant, who viewed a scrap of land and a cow as the only real haven against destitution.
Be that as it may, other factors were no doubt more important. Ireland is a very small country, population-wise, in which it is easy for cronyism to flourish. The dominant political party, Fianna Fáil, which not only has ruled for the majority of Ireland’s independence but sees itself as the natural party of government, had, as it has always had, unhealthily close relations with the business and financial elites of the country. To say that their relations are dialectical is to put it politely. In the circumstances, independent oversight of what was going on was difficult; it was not attempted.
What happened in Ireland is what happened in many other countries, including the United States and Britain, but on both a smaller and a larger scale. It was smaller because of the size of the country; but it was larger relative to the economy.
Bank credit was expanded at the cheap rates of interest that membership in the eurozone allowed and indeed mandated; asset inflation followed, so that property prices in Dublin reached eye-watering levels even for people, such as Londoners, well used to rising property prices. Good Victorian or Edwardian houses sold for up to $40 million. Speculation followed the Dutch tulipomania model, and as much property was built in Ireland as in the United Kingdom, which had a population 15 times the size and was itself no stranger to property speculation.
Money flowed into the coffers of the government, which collected 40 percent of the cost of new constructions by the time they were sold. So long as they were sold, then, government finances were rosy: Budgets were balanced, no matter how much the government spent and what obligations it undertook.
It expanded the public service, and into the bargain made the Irish public service the best paid in the world. Doctors working for the government were paid twice as much as they would have earned in Britain — despite the fact that doctors in Britain were receiving huge pay raises as well. The Irish prime minister was among the best-paid leaders in the Western world.
Everyone had a party that lasted more or less 15 years. It is no good pretending that the population didn’t enjoy it, or was prescient about the dangers and berated its political masters for their improvidence. The great hero of the Celtic Tiger’s fools’ golden age, now as reviled as he was not long ago admired, and now personally bankrupt, was Sean FitzPatrick, known to everyone in the country as Seanie, a Dublin boy from a poor background, who, with few academic qualifications, swashbuckled the Anglo-Irish Bank from nearly nothing to giant size, with $140 billion in assets, and all in practically no time at all. The bill to the Irish taxpayer has just come in, at about $42 billion, or $10,000 per head of population. The bank, it seems, extended $50 billion in credit to just 100 property entrepreneurs, well connected politically, by means not previously known to cautious or orthodox bankers.
Thanks to the banking crisis, the budget deficit this year will be 32 percent of GDP, probably a peacetime record for any state. The underlying problem of the “normal” government deficit, as well as private indebtedness, contracted with rising house prices as collateral, is even worse: An average Irish household of four is now committed to paying interest on debts of something like $800,000 before it consumes so much as a potato. It is not difficult to see what will happen if interest rates rise. In any case, Irish government borrowing is even now three times as costly in interest rates as German.
Public-sector salaries, already cut by 20 percent in some cases, will soon be cut further in an attempt to restore confidence — a painful adjustment that the Irish population has so far accepted with admirable fortitude or resignation. My Irish friends, who did not participate in the party except to the extent that they took pleasure in the apparently ever-increasing value of their assets, are worried now that they will live the rest of their lives in unexpected austerity.
Of course, the austerity is relative. The closing of restaurants is not the same as a famine. But it is astonishing how quickly you become used to champagne and regard a lack of it as hardship. It is comforting to blame the government, but the problem goes far deeper than that.
No one should feel smug about the Irish situation. The proper study of mankind is man, said Pope; and the proper study of the economic crisis that afflicts the Western world is Ireland, where it is in its purest, most unadulterated form.
– Mr. Daniels is the author of Utopias Elsewhere and other books.