Financial and Economic Crisis: Explaining the Sunset over the Celtic Tiger

Abstract

This article examines the causes of the financial and economic crisis in the Republic of Ireland. It first reviews the crisis in advanced capitalist democracies and then situates the Irish case in this context. In the section thereafter, it relates existing narratives and other evidence to the different theoretical explanations surveyed by Bernhagen and Chari (in this issue) in order to identify the most useful approaches to explaining the Irish crisis. It concludes that explanations focusing on the role of mass preferences and varieties of capitalism do not aid our efforts to understand the causes of the crisis or how it unfolded. By contrast, an explanation focusing on the role of lobbying is of some value, as are analyses of elite integration and the structural dependence of the Irish state on a thriving financial and property market. The article closes with lessons to be drawn from the study, with a particular emphasis on future policy responses and remedies.

Keywords:

• financial crisis
• economic crisis
• Irish banks
• financial regulation
• Fianna Fáil government
• developers
• symbiosis

Acknowledgements

A previous version of this paper was presented at the 60th Political Studies Association Annual Conference, 29 March–1 April 2010, Edinburgh, UK. The authors thank Heinz Brandenburg, Michael Gallagher, Brendan Howe, Eddie Hyland, Colm McKeogh, Laura Sudulich and Benigno Valdés for insightful comments as well as those civil servants and lobbyists consulted during the study who offered frank and honest comments in anonymity.

Notes

By ‘state’ we mean the various branches of government, regulatory authorities, government parties and the civil service.

For our overview of the global developments, we draw closely on Gamble (2009, 2010). For Ireland, we rely on recent accounts by Connor et al. (2010), Honohan (2009) and Ross (2009).

See http://www.ntma.ie/IrishEconomy/bankGuaranteeScheme.php

In early 2007, the combined assets of the five major US investment banks accounted for $4 trillion – or roughly 40 per cent of the total assets of the entire US banking system (Krugman, 2008: 161).

The Central Bank Reform Act, 2010, created a new single unitary body – the Central Bank of Ireland – to replace the previous related entities: the Central Bank, the Financial Services Authority of Ireland and the Financial Regulator.

For an analysis of the housing market in Ireland, see Department of the Environment, Heritage and Local Government (2009) as well as the graph that can be found on the Ireland After NAMA website: http://irelandafternama.files.wordpress.com/2009/12/new-house-prices-2000-092.jpg