European Countries with a Sovereign Debt Crisis: Ireland
Over the past decade, there has been an economic phenomenon that has gripped several powerful countries in the European Union, causing an economic crisis that has caused several countries to spiral into a conflict of identity and policy. While some of these countries have gotten better, others have not. This series is devoted to looking at the actions of each country that faced a sovereign debt crisis, and the actions they took to combat it. Some of these actions have worked tremendously, while others have not. Looking at these actions can give us knowledge about how to handle such issues in the future, while also giving an idea of the strength of the European Union to handle such disasters.
How it collapsed
To see the history of how Ireland came to face its own sovereign debt crisis, one must look back to see its activity over the course of the 20th century. After World War 2, Ireland mostly struggled to get back on its feet. Due to its neutrality, it didn’t get the boost in productivity that other Allied powers received. However, by the mid 90’s, Ireland was actually performing better than the rest of the European Union, economically. During this period, unemployment fell to about 4%, which many economists consider to be roughly full employment, as the people on unemployment are likely cyclical. However, in 2002, productivity ceased to rise from that point onward.
Effects of collapse
Tax revenue in Ireland was greatly dependent on the housing industry, which was beginning to collapse. However, Irish banks continued risky lending, despite that the industry’s productivity had begun to cease. Soon, this caused a collapse and a banking crisis, which sank tax revenue. Rapidly, Irish sovereign debt began to reach uncontrollable levels, and the government was becoming locked out of foreign investments which could help it recuperate.
How it got better
Eventually, the Irish government received an assistance package of $85 billion. However, while some of that money came from the European Union, $17.5 billion was Irish money, per the agreement. This stimulus reduced the effects of the collapse, limiting the damage to Irish families. In rebuilding, Ireland now has a smaller, more focused banking sector that is less prone to collapse. Because of this, public finances finally began to stabilize, allowing for better government implementation that wasn’t as wasteful. Ireland has now sufficiently recovered and is growing again, while investment has grown significantly. There is still some ground to cover, though, as unemployment and the deficit are both still fairly high.