After a week of media headlines declaring the Republic of Ireland bankrupt and on the verge collapse, the EU with the IMF and a number of individual nations have finally agreed a rescue package to bail out the Irish economy.
During the last few years The Republic of Ireland was transformed from one of Europe’s poorer countries into one of its wealthiest. With its small population and a reliance on energy imports, Ireland established an economy to attract foreign investment through an educated workforce and the lowest corporation tax rate in EU.
Foreign money swiftly flowed into Ireland leading to some big names such as Dell, Intel and Microsoft to expand operations in the country. These companies were attracted to Ireland because of its EU membership giving free access into Europe, relatively low wages, government grants and low tax rates. Cheap borrowing costs fuelled a property boom which was financed by Irish banks borrowing heavily from abroad.
As the economic crisis ensued the housing bubble burst, those companies and banks being driven by the housing boom found themselves in a situation where their loans were written off, or became un-payable as the price of property fell below the values of loans. The Irish Government provided unlimited loan guarantees to the bankers and is now itself is need of a bail-out from the IMF and the European Union. To save the banks the Irish Government has bankrupt the whole country.
There are number much broader issues the Irish crisis highlights:
– The Irish model of development has been tried and tested by a number of emerging nations in the post war era, with little success and many notable failures. Developing an economy solely to attract foreign investment was spectacularly exposed by the collapse of Dubai exactly this time last year. Such a model of economic development makes a nation reliant on foreign flows of money and investment and on international sentiment rather then its own domestic conditions – such a model of development is not sustainable.
– Capitalist nations for long presented their development as the blueprint for economic development. Ireland is now part of a growing list of failed economies. The export driven model of the tiger economies were all victims of the Asian financial crisis in 1997, whilst the structurally adjusted countries of Latin America still reel from economic failure. Similarly the Baltic tigers and now the Celtic tiger have learnt there is no short cut to economic development.
– Membership of the European Union was meant to bring economic stability to the smaller nations of the region. However they have all been termed the PIGS economies, due to their drain on the whole union. Ireland’s reluctance to accept a bailout was due to the nation losing even more of its economic and political sovereignty. Its membership of the union has resulted in a loss of monetary policy and sovereignty.
– Western Capitalist economic thinking is struggling to defend itself as it continues to turn to more anti-capitalist and socialist polices to prop up their economies.
Whilst the Western world continues to sell unrestricted free markets, removal of state involvement in the economy, to the world, we see them abandoning such a strategy at home.
The world’s largest economies are running out of options as they have thrown every fiscal and monetary policy at the crisis with little success. Capitalism as we know it has no plan B, it is now time for an alternative economics.