DP7811 Whatever Happened to Ireland?

Author(s): Morgan Kelly

Publication Date: May 2010

Keyword(s): Credit bubble , Irish economy

JEL(s): E52 , O52

Programme Areas: International Macroeconomics

Link to this Page: www.cepr.org/pubs/dps/DP7811.asp

Abstract While Irish GNP quadrupled between 1990 and 2007, this Celtic Tiger growth came from two distinctive, sequential booms, with export driven growth during the 1990s being followed after 2000 by a credit fuelled construction boom. Bank lending rose from 60 per cent of GNP in 1997 to 200 per cent in 2008, causing a house price bubble and a building boom where 20 per cent of GNP came from construction. The collapse of the credit bubble leaves Ireland with high unemployment, uncompetitive wages, a large government deficit, and insolvent banks. Despite the Irish government's already having committed itself to spend the equivalent of half of GNP to cover bank losses on developer loans, substantial further spending will be necessary to cover losses on other loans.