This question has  been on my mind  quite a  bit after  spending  two months home in Ireland  following  five  years in the United States.
The physical appearances are positive.   A new terminal is moving rapidly toward completion in Dublin Airport. The  road  system around my  own  town of Dunboyne is  undergoing a  transformation greater  than  anything  that  happened in the last  two  centuries, and a  rail service , that closed  when I was a  small child, is on the  way toward being  reopened.  Real wealth has been built up by many families whose homes have been reequipped with modern conveniences of all kinds , and  most of  those gains have  been preserved  despite the   40% fall in house prices. Meanwhile the shops are full, and a tough pay and welfare cutting budget apparently has   been accepted with remarkable maturity by the electorate.
Given that Ireland enjoyed  almost miraculously high  growth rates from  1994 to 2007, it is easy for a  people  who became so used  to success,  to see  the financial crisis of 2008 as not much more than a  temporary interruption of the  earlier growth trajectory.
It is only  when one  analyses  the  figures in  more  depth  that one  sees  that problem  facing Ireland is  quite  different  from  that  facing other  countries, and   that  the path  to recovery may  have  to be  much longer.
The  deeper problems are  well analysed  by  a  Professor of  Economics  from my  old university, UCD, in a  paper  entitled   “The Irish Credit  Bubble” published a  few  days  ago.  See www.ucd.ie/t4cms/wp09.32.pdf
Professor Morgan Kelly identifies two features that distinguish the Irish problem from that of most  other  countries.
One is the disproportionate reliance  Ireland placed on  the building industry to  generate  jobs, spending and  tax  revenue .
The other is the disproportionate increase in bank lending   in Ireland since 2000.
House building provided just 4 to 6% of national income in the 1990s, but it provided   15% of Irish national income in  2007.
Bank lending  amounted to only  60% of  GNP in Ireland  in  1997(slightly below  the  European average), but by  2007 bank lending  had risen  to 200% of  national income (twice the  European average).   And to make matters worse, that lending was no longer based , as it was in  1997, on Irish  deposits  but predominantly on money borrowed  on a short term basis on  foreign money markets, some of  it was in  bonds that will  mature  for repayment in  2010.
Professor Kelly foresees a  substantial  further  fall in Irish house  prices.  He  argues  that  this  will lead to people,  who  find  that their  mortgage then  exceeds the reduced  value of  their home ,   walking  away from  their liabilities by  emigrating as soon as  they  can find  work abroad . He  foresees  write downs in the value  of  the mortgage book  of  some of the banks having to be  so great  as to  eliminate even  the extra  capital  the banks  recently obtained  from the Irish taxpayer .  He argues that in 2008 the Irish Government should not have guaranteed all the debts of the bank, just the deposits. He believes that the taxpayers should not take this on the next time there is a problem.
Professor Kelly is one of the few economists who foresaw the crisis and his views deserve attention.
Many of   the houses  built during the credit boom  were needed and will still be needed.  Before  the  boom started , the Irish  housing  stock  was insufficient for  a population  that was growing and  which contained an increasing number of people living  on their  own . But some of the houses were built in the wrong places, in low density schemes far away from public transport and other amenities.
I argued in 1999 in a policy document of my party entitled “Plan for the Nation” that houses should have been concentrated in growth centres close to rail links. If that policy had been followed, the  houses  would have  been more  saleable  and the  write downs  facing the mortgage  holders and  the  banks today  would  be less.
Looking to the  future, it  appears that Ireland is  saddled   with a banking  problem  that  will drag it  down and hold it back  for  years to  come, long  after other  countries have resumed  growth.  The Irish banks  will not  be  able to  give credit even to  good Irish businesses  with good  prospects. But Ireland  has  many of  the ingredients for a  dynamic  economy- a relatively young, educated and internationally minded population ,  good  natural resources,  and a political system which is capable of making  relatively speedy decisions( which some bigger countries lack).
Banks in other European countries are in a better state than the Irish banks, and it should be possible to encourage them to lend directly to viable Irish businesses and households. This would need arrangements  for easier  cross border debt  collection and  standard  terms for bankruptcy and priority  between  creditors.  This should be a test for the European Union, to find a way to encourage   cross border banking as part of a programme for economic recovery.
Ireland itself desperately needs to  bring its personal bankruptcy laws  up to  date,  so that people  get a  chance  to start again  rather  than remain in  bondage  for   up to  12  years as is now  the case.
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