The Irish recession that began in 2008 has understandably received enormous public, official and academic attention. To date there have been five official reports , including the parliamentary Banking Inquiry . There have also been several authoritative academic examinations, notably those by Patrick Honohan (2009), Morgan Kelly (2009), Philip Lane (2011) and Karl Whelan (2013). The most comprehensive academic analysis to date has been Donovan and Murphy ’s 2013 book, ‘The Fall of the Celtic Tiger ’. There is a strong consensus about what happened to the Irish economy, and the systemic weaknesses that left it so exposed. While these works pay some attention to the discourse on the economy in the years preceding the crash, in no instance is it the core focus. This gap has been filled to some extent, and analysts such as Daniel Kanda (2010), Jim O’Leary (2011) and Michael Breen (2012) have scrutinised the external surveillance of the Irish economy during the boom years. Similarly, Julien Mercille (2014) and Mark O’Brien (2014) have both examined the role played by the newspapers in the period. Nonetheless, there has been little focused analysis on the contemporary publications by domestic organisations like the ESRI , of the political debates, or of the contribution made by academics .
This leaves a significant gap in the literature. If the economic roots of the Irish crisis have proven to be relatively mundane, the sociopolitical issues it has raised are much more challenging. Key questions that are yet to be fully answered include:
- 1.Why were most commentators so unaware of the scale of the risks to the Irish economy?
- 2.What was distinctive about the analysis conducted by those who warned about systemic threats?
- 3.Did the newspapers intentionally downplay the risks to the property market and the economy?
- 4.What role did academics and politicians play in the discourse ?
- 5.Was the Irish crash ultimately attributable to poor policy, flawed analysis, or both?
A systematic analysis of the public discourse on the Irish economy goes a significant way towards answering these questions. The core study of this book is based on an examination of the relevant publications by four formal international and domestic organisations, the ESRI (Economic and Social Research Institute), academic economists , the two main Irish daily broadsheet newspapers , The Economist and the contemporary Dáil (parliamentary) debates. This amounts to over 130 reports, a similar number of academic journal articles, thousands of newspaper articles and seven years of political debates. It is certainly sufficient to provide an insight into the mentalities of contemporary observers of the Irish economy. There are of course many additional sources that would be worthy of scrutiny in the future, including the contributions made by private-sector analysts, the international ratings agencies, additional newspapers, television and the Dáil committee debates.
It is important to clarify the necessary limits of the study. While those writing the officially commissioned reports were given access to the internal files of the banks and the regulatory authorities, these records are not publicly available and are not expected to be for the foreseeable future. We therefore cannot examine the mentalities underpinning the decisions that senior bank officials made in the period. The testimonies made to the parliamentary Banking Inquiry are available, and in some cases have been very useful. But these are best regarded as supplements to the source material from the period. Statements made after the crash need to be treated with a degree of caution. Given the paucity of internal documentation published to date it is difficult to conclude whether senior bank executives were aware of the extent of the risks they were taking. Bill Black , as a former director of the US Institute of Fraud Prevention, has argued that bankers must have been cognisant of the danger because similar actions had been so closely associated with disaster in the past. However, this is to attribute Irish bankers with a knowledge of financial history that they may well not have possessed. The fact that many staff and several non-executive directors from Anglo Irish Bank had equity holdings in the institution is highly suggestive in this respect. Similarly, Sean Fitzpatrick , as CEO and later chairman of Anglo, invested €16 million of his own money in AIB and Bank of Ireland shares. Accusing bankers of incompetence rather than intentional fraudulence may actually be appropriate in many cases.1
As we will see in Chapter 2, it is far from unusual for large numbers of people to arrive at unduly positive conclusions about future market developments. In a global historical context, the fact that the prevailing view was so wrong is therefore less surprising than it first appears. Of primary interest then, are the analytical shortcomings that underpinned the majority view, particularly flawed assumptions and illogical reasoning processes. The consensus view was overly sanguine in two key respects. Firstly, commentators were unduly optimistic about what they considered to be the most likely outcome for the boom. Secondly, and much more interestingly, even when commentators did try to consider worst-case scenarios they clearly had difficult envisaging a crisis on the scale of what subsequently materialised. The intellectual perspectives and historical horizons evident in the key publications offer considerable guidance in this respect, and will be a core focus of the study.
The millennial year marked an important juncture for the Irish economy. This is generally considered the point at which the export-led boom of the 1990s mutated into a credit -driven bubble . While there are inevitable problems with defining economic periods in this way, it does seem like a good starting point for our study. Similarly, 2006 is significant because it represented the peak of the residential property boom. There is some agreement that at this stage ‘the die was largely cast’, and it is difficult to imagine how a significant economic crisis could have been averted. The time span of interest is therefore the bubble period prior to the onset of the global financial crisis . In some cases the focus will extend beyond this period, for example to incorporate some of the concern expressed about the decision to join the European Monetary Union in the late 1990s.2
The treatment of a period that ended just over a decade ago as history is worthy of discussion. Opinions about how long ago events need to have happened to be considered historical are inevitably subjective. The frequently cited difficulties that arise from studying the recent past as history are that not enough material has been made available and that the researcher faces additional difficulties in terms of achieving sufficient dispassion and historical perspective. This book deals with the first problem by deliberately concentrating on the sources that are already available as its primary focus. It is up to the reader to decide whether the study is sufficiently objective, though of course the passage of time is clearly not a guaranteed safeguard in this respect either.3
Our focus on the recent past offers opportunities as well as challenges. Since much of the primary material is already digitised it is possible to study it quite quickly, and therefore to be more comprehensive than if it was only available in physical archives. As will be observed, search engines and online databases also allow for some quantitative analysis that would be prohibitively time-consuming otherwise. There are invariably trade-offs in some cases. One pertinent example is that by using digital archives of the newspapers one gets less of a sense of the physical positioning and prominence that an article was given. Even this will become less of an issue in the future: as newspapers are increasingly read online, the readership figures for individual articles will provide a fascinating resource.
Although the house price crash has garnered enormous attention since the start of the crisis, it was far from the most destructive element in its own right. The collapse of the construction sector had a much greater impact in terms of job losses, and Ireland’s reliance on the sector for employment was both a cause and effect of the cost competitiveness losses observed during the boom. The human impact of the house price crash would have been far less severe had workers, the Exchequer and the banks been less exposed to the fortunes of the construction sector. It is therefore vital to examine what commentators said about all of the key economic vulnerabilities. Each chapter will examine the analysis conducted under four categories: property and construction , fiscal policy , competitiveness and the financial sector . Of course, there was often a great deal of overlap, and the boundaries between each were quite permeable. Nonetheless, by using this framewor...