From The American Conservative – Wreck of the Irish: What America can learn from Ireland’s meltdown –
… most of the Irish I talk to have mixed feelings about the Celtic Tiger: no one regrets making more money, building new homes, or taking annual vacations. Some have misgivings about what the new stresses and two-salary households did to families, what the construction boom did to the landscape, or what greed did to this very traditional society.
The most common complaint, though, is that the ruling party, Fianna Fail—rhymes with “tall,” but looks like a bad pun—squandered the boom years, failing to develop the country’s infrastructure as Americans did during their postwar peak. In my Missouri hometown, I could walk to a two-story library and a public pool, both open 12 hours a day, both built in the 1950s. Here the nearest library remains two small rooms alongside a gas station, the nearest public pool is small and far away, and both are open about 12 hours a week.
The boom that kicked off in the 1990s led to a real-estate bubble, and villages within commuting distance of cities quickly acquired acres of suburban developments, their populations as much as quadrupling in a decade. These towns and housing tracts rely on the same narrow, winding roads that have been in use for centuries. Prosperity brought Ireland all of the sprawl but none of the highways to which Americans are accustomed. We live 40 miles from Dublin, a half-hour drive on American roads but a three-hour round-trip bus commute each day for us.
Nor can we work from home—we don’t get the Internet. A 2005 report ranked Ireland 25th out of 32 nations in Internet service, as opposed to economically poorer Northern Ireland with 100-percent coverage. Meanwhile, near my office in the shabbier part of Dublin, abandoned buildings have the same broken windows they had before the boom; some of them have willows growing through their cracked bricks. For all the wealth the Celtic Tiger acquired, very little of it went into what Americans once called internal improvements.
By the time the banking crisis hit in September 2008, Ireland had a real estate bubble three times the relative size of America’s. Perhaps hoping to keep it afloat, that year the leaders of Fianna Fail took a bold step. On Sept. 20, Taoiseach (TEE-shak, or prime minister) Brian Cowen announced that the government would guarantee 100 percent of all bank holdings in the nation.
Not all deposits up to 100,000 euros, as the FDIC once did with dollars. Not just low-risk deposits, or 50 cents on the dollar. The government promised to back everything owed by all six Irish banks for the next two years—nine times the national debt.
The announcement shocked European leaders, concerned that their own countries’ investors would flee to Ireland. Less than a week later, the British press reported that investors were pressuring Prime Minister Gordon Brown to duplicate the Irish assurance. Brown demanded, in the words of the Daily Mail, that Ireland “stop trying to poach UK customers.”
Economists like MIT’s Simon Johnson maintain that this is when, and why, European countries began offering reckless guarantees to keep their investors home—first the UK, then Germany, the European Union itself, and finally, across the ocean, the United States. Ireland had started a stampede at a moment of crisis. No other nation completely backed all holdings as Ireland did, however, and none of those countries had such an extraordinary bubble supported only by the paychecks of a country with half the population of the Chicago area.
Last October, Financial Times columnist Wolfgang Muenchau called the Irish decision “one of the most catastrophic political decisions taken in post-war Europe.” Even as he wrote, the two-year guarantee was coming due.