Tuesday, February 01, 2011

Looking Back at the Celtic Tiger

VI formers are currently preparing for their Mock exams. Part of this preparation is thinking about their composition topics, and practising writing on these. It seems particularly appropriate, given the circumstances which have led up to the calling of a General Election today, to post now Sebastian McAteer’s take on the Celtic Tiger.

This essay was written on the topic “… my take on recent history …” Write a personal essay in which you discuss your views on a recent event or series of
events in the world, which was one of the Higher Level questions in 2005.

I feel that the Celtic Tiger is one of the most remarkable features of recent European history. In a period of extraordinary economic growth, Ireland transformed from an underachieving, backwards, theocratic, agricultural nation into the economic jewel of Western Europe. This economic boom had a tumultuous effect on Irish society and the change in the structure of the Irish social hierarchy was simply fascinating.

For the majority of the 20th century, Ireland was a backwater. The promised land of political independence had been reached but this finally-sovereign state experienced serious economic stagnation and extreme religious piety. Ireland remained on the geographical and political fringes of Europe and the only remarkable thing about the island was the huge number of people who didn’t want to live on it, as illustrated by the remarkably high emigration rate.

For a country that had been founded on such high ideals and with such hope for the future, it seemed destined to remain economically and socially stagnant. However this was soon to change and this change came about by the passing of one law. During the early 1990’s, Irish corporation tax was 35%, the European average. However, in the 1998 Budget, Fianna Fail made the momentous decision to reduce it to a much more internationally competitive rate of 12.5% and in doing so, changed the fate of Ireland forever.

The reduction of this tax caused the multinational companies of the world to stop work and stare greedily at Ireland. They moved quickly: the word was spreading fast, that Ireland, with its low taxes, educated, English-speaking workforce and the perfect springboard location for an assault on the European markets was the new investment destination. Ireland welcomed them with open arms.

The effect was instantaneous. Irish tax revenue exploded, ballooning into billions of euro as the multinationals arrived, set up camp and started employing hundreds of thousands of people to build computers, Swedish furniture and answer phones. Economic prosperity caused the population to explode as people finally felt the necessary financial security to have another child. After seventy years of near poverty and frugality, the Irish people embraced their newly inflated pay cheques whole-heartedly and started spending. Handbags, cars, wallpaper and houses, especially houses.

Now, it could be expected that, considering the huge injection of cash into the country, Ireland’s famously corrupt political classes would be able to wean themselves off dipping into the state’s coffers as the period was characterized by TD’s passing laws to give themselves pay rises. Alas no. It got worse. Fianna Fail took the philosophy that since there was so much more of the Irish taxpayer’s money floating about, that it would be less likely to be missed when they used it to buy their second newly-constructed home in Ballsbridge.

In the midst of this hysterical consumer spending and blatant political corruption, the economy began to slow down. In 2002, after almost ten years of constant growth, the Irish economy gave a small hiccup. However, this hiccup was heard throughout the country as government ministers paused from piling gold bars into the trunks of their brand new cars to listen. It would also be reasonable to expect that now, after a good, long run, the politicians of Ireland would accept that the good times were over and would begin to curb spending so as to return the economy to safe, sustainable growth.

This did not happen. Obviously worried about how they would pay the charges on their multiple offshore bank accounts, the government slashed interest rates to encourage lending and the Irish economy entered into a frantic, unhealthy overdrive. The banks were finally free to pursue the same level of profits that had been granted to the multinationals almost ten years previously and they seized the opportunity.

The frantic spending of the early noughties was to be remembered fondly compared to the cloud of hysteria that infected Irish consumers after this. Loans from the freed banks to the construction sector caused the price of houses to sky-rocket which in turn created a new class of nouveau-riche property developers who seized the social status long vacated by the priesthood, the Irish upper classes. They took advantage of the next fad in Irish consumerism as banks began to hand out 110% mortgages, desperate to secure a quarterly profit. Ireland became a country of the crane and the immigrant electrician, the rural housing estate and the interior designer. Houses were appearing around the country like bamboo forests as the banks poured money into the economy.

The Irish public tried to keep up with demand but the houses were coming too fast. All around the country was the news that your roommate from college had just bought a twelve-bedroom Georgian palace in Kilkenny or your eastern European maid had purchased a semi-detached in Drumcondra. Property was the new poker and everyone was playing.

Then, in 2008, the US sub-prime mortgage situation unravelled and the supply of foreign money into Anglo-Irish Bank dried up. The boom was over. People were shocked. They looked to the politicians and cried accusingly, “You said it would be a soft landing! I have a €400,000 mortgage and I’m signing on for the dole. What do I do?” In reply, the politicians retreated silently to their Southside mansions, also mourning the loss of the boom and considering how this unfortunate loss of growth would affect their Christmas bonus. The Celtic Tiger had died a true death and there was no way it could be resurrected.

What are we left with? A spiralling budget deficit as the government struggle to cope with paying off the 110% mortgages that Anglo-Irish were so fond of. A political class who are scratching their head and wondering what they did wrong. A desperate unemployment situation. Negative equity. Debt.

These are the souvenirs of the Celtic Tiger but surely there are positives? Did the government use their astronomical budget surplus in 2004 to invest in state of the art health and education systems? World-class infrastructure?

No. The money that could have prevented children being taught in portacabins or stopped pensioners lying on hospital gurneys for days on end is either tied up in worthless property, being used to bail out greedy bankers or is otherwise unaccounted for.

This is the legacy of the Celtic Tiger. It revolutionized Ireland. It gave the Irish people disposable income and the consumer goods to spend it on. It raised them out of poverty and into newly built homes. It gave them hope for a better future and improved lifestyle. Then, the economy collapsed, we were thrown out of the newly-built homes and can we honestly say we benefitted from those ten years of constant economic growth? I certainly don’t think so.

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