The collapse of the Irish economy has come as a particular shock to many people, at home and abroad, because of its seemingly remarkable success in the preceding years, the period of very rapid economic growth that saw the country, from the early 1990s onwards, described as the ‘Celtic Tiger’. However, that era in fact consisted of two distinct phases.

In the first phase, before 2001, growth was largely based on the attraction of (mainly US) multinationals taking advantage of Ireland’s low corporate profits tax rate (12.5%) and using the country as a base from which to export to the EU. After 2001, economic growth was based largely on a property price bubble. Investment in buildings accounted for 5% of output in 1995 but for over 14% in 2008. By 2006/07, the construction industry was contributing 24% to Irish income (compared to the Western European average of 12%), accounting (directly and indirectly) for 19% of employment (including high levels of migrant labour) and for 18% of tax revenues (property transaction taxes have now collapsed as construction activity has nosedived). House prices, which quadrupled between 1996 and 2007, are down 43% from their peak levels and may well have further to fall; vast numbers of houses lie empty.

Where was the money coming from?

What was fuelling the property price bubble was a massive rise in household debt, which shot upwards from €57 billion in 2003 to €157 billion in 2008. It is this trend that caused the last Irish Minister for Finance to claim that “we all partied” – while it is certainly true that many people did borrow increasingly heavily during the boom, the actual benefit, if any, they accrued from this is far from clear. Lending for mortgages rose from €44 billion in 2003 to €128 billion in 2008. Irish financial institutions increased their lending by 466% between 1998 and 2007 – almost entirely to the real estate and financial sectors rather than to the genuinely productive economy, with infrastructural investment in areas such as transport, health, education and telecommunications relatively neglected. Anglo-Irish Bank and Irish Nationwide Building Society took the lead in this speculative mania. And the Irish banks were themselves borrowing in order to lend on to their customers: the 6 main Irish banks borrowed €15 billion from abroad in 2003 but this figure had risen to €100 billion by 2007.

Where were the regulators?

This reckless splurge was facilitated by liberalised lending practices across the EU and by lax cross-border regulation of the financial sector. The low interest rate policy of the European Central Bank (ECB) fanned the flames: the ECB variable rate was cut from 4.25% in August 2001 to 2% in June 2003. The Irish authorities also contributed to the property bubble with a range of tax incentives to property development and lax oversight of the financial sector – the Department of Finance, the Irish Central Bank and the Financial Regulator were all negligent in this regard.

Why did this private debt become public debt?

When the global financial crisis hit, access to credit declined drastically worldwide and asset values tumbled, leaving banks (including the Irish ones) in a parlous position. The Irish government chose to respond to the plight of the banks in an extraordinary manner: on 30th September 2008 all depositers and senior bondholders (creditors to the Irish banks) were guaranteed by the state. As writer Conor McCabe put it, “the Irish people woke up to find that the… government had put up the entire Irish State as collateral for the crushing liabilities of six private banks”. The total cost of bailing out the banks is so far estimated to be €70 billion, and this may be an optimistically low figure as various other bills, so-called ‘contingent liabilities’, are yet to be presented for payment. An example of a contingent liability arises from the Irish state creating a National Assets Management Agency (NAMA) to buy up some of the worst property loans in the hope of selling them on later – the full cost of this is as yet unclear, though it seems clear that taxpayers will end up subsidising property developers to some extent at least and the public is being denied access to information about the agency’s opaque workings.

Who is paying the debt?

This money is coming (or will come) from ordinary citizens: we have already witnessed more than €20 billion in ‘fiscal adjustment’ (spending cuts and tax increases), what economist Karl Whelan describes as “the equivalent of…€4,600 per person… the largest budgetary adjustments seen anywhere in the advanced economic world in modern times”. 2012 will see spending cuts and tax hikes of €3.8 billion, with that figure, probably, between €3 billion and €4 billion for each of 2013, 2014 and 2015. A loan from the IMF and EU was contracted in December 2010 as Ireland could no longer borrow at affordable rates from private financial markets. The conditions attached to this loan stipulate that austerity measures must be continued.

What are the consequences of debt repayment?

The social price being paid is catastrophic, not least because the austerity policies are sending the economy into a tailspin: national income is already down over 15% from its peak level. Unemployment stands at almost 15%, close to half a million people. The only sector showing some dynamism is the multinational ‘export platform’ (especially pharmaceuticals and computer services), but the employment pay-off from this is limited. Emigration is estimated to be running at 40,000 per annum. The economy is mired in recession, with investment down from over €48 billion in each of 2006 and 2007 to a little over €18 billion in 2010. Bank loan approval rates fell from 95% in 2007 to 55% in 2010, and Ireland is now rated the second lowest ranking country in the EU for provision of finance to small and medium sized enterprises. Meanwhile, Irish banks, despite their newly cautious lending practices, are highly dependent on short-term loans of over €150 billion from the ECB and the Irish Central Bank as bank deposits have fallen steadily. If Ireland were to try and return to the private financial markets, it could probably only borrow at a very high rate of interest.

What is the overall size of the debt?

Debt as a proportion of national income will likely be 143% in 2013 and will probably still represent 140% of national income by 2015 – despite several years of savage austerity. When the aforementioned ‘contingent liabilities’ are factored in, the Irish national debt stood, according to a debt audit, at €371.1 billion on 31 March 2011. This is equivalent to almost 300% of Irish national income.

Why is this an unjust debt?

Of this, €279.3 billion (over 75%) is accounted for by the state-covered debts of the Irish banks, and this, as the audit notes, is before taking into account the likelihood that much of the direct government debt of €91.8 billion may itself have arisen from the banking crisis. In other words, the audit proves conclusively that the Irish debt crisis is a crisis of private (subsequently socialised) debt, not public debt – the allegedly ‘bloated’ nature of the Irish public service, or ‘generous’ welfare entitlements, did not cause this crisis. As the audit puts it, “it is clear that the bulk of Irish government debt has arisen directly from the banking crisis, the decision in September 2008 to rescue all of the Irish banks”. Alarmingly, the audit notes that the headline figure of €371.1 billion may be an underestimate. For example, the audit does not count unguaranteed bonds issued by the banks (and therefore not legally the responsibility of the Irish state) as part of the debt but, to date, the Irish government has been repaying these bonds also.

Articles cited:

Banking Inquiry Commission report Misjudging Risk: Causes of the Systemic Banking Crisis in Ireland, March 2011

Finn, Daniel. Ireland on the Turn? New Left Review 67, Jan – Feb 2011

Gurdgiev, C et al. The Irish Economy: Three Strikes and You’re Out? Panoeconomics, 2011.

Kitchin, R et al. A Haunted Landscape: Housing and Ghost Estates in Post-Celtic Tiger Ireland. NIRSA Working Paper, 2010

Killian, S et al. An Audit of Irish Debt. University of Limerick, September 2011

Ó Riain, Seán. Banks, the State and Finance 1998-2007. NUI Maynooth, March 2009

Whelan, Karl. Ireland’s Sovereign Debt Crisis. May 2011


  1. jack mckay says: February 17, 2012 • 17:55:42

    loved the article,answers a lot of my questions,,the meeting in galway sounds good too..i am trying to find a pie chart showing the distribution of irish debt,,,can u help????


  2. Joan Larkin says: February 22, 2012 • 16:25:03

    Is there on your site any info about who are the bondholders. If not, where?


  3. luke says: September 20, 2012 • 15:58:23

    “Why is this an unjust debt?”

    Please answer the question you pose. You give the numbers- that most of the public debt is bank debt taken on by the State. But recounting these facts doesn’t explain why you think this is ‘unjust’. Who should pay, if not the Irish state? Certainly getting the EU taxpaying citizenry to shoulder the cost doesn’t seem, to me, to be any fairer. It was Irish banks and Irish property developers overseen by Irish regulators who borrowed the money, so if not the Irish state, then who, if anyone, should pay it back?


    • Lars says: November 3, 2012 • 02:28:19

      Luke: I don’t know if you are sarcastic or if you really are that dumb. Anyway, the author implies the obvious – the guilty (read banks) should take the haircut, not the innocent (read taxpayers).

      When your neighbour max out his creditcards, buys a new car and a house he can’t afford, are you picking up the tab?


  4. Pat Rogers says: November 21, 2012 • 16:34:10

    European banks carry some of the blame here. In Germany and France if a home loan is defaulted, the banks take responsibility for any short-fall since they are legally obliged to make sure that homeowners are in a position to pay back any loans against property. Indirectly the European banks contributed to the Irish property bubble by indulging in lending practices that are illegal in their own countries.


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