Hard not to be smug about the UK today just a smidgeon

Recession: the bad luck of the Irish


It was once hailed as the best place to live in the world. Now it’s in the grip of a terrifying economic storm. Could Ireland be the first euro country to go bust? John Arlidge
In Ireland, the biggest funerals take place in the smallest churches. St Mochta’s, on Dublin’s western fringes, is little bigger than a front room. So many mourners turned up for the funeral of Patrick Rocca that they spilt out onto the pavement. Anyone who is anyone in modern Ireland was there, huddled together under a sky the colour of a day-old bruise.

Politicians, pop stars, billionaire developers, horsemen and the sporting elite. Even the paparazzi. Rocca would have liked that. The 42-year-old was the self-styled poster boy for the new, resurgent Ireland, with a glamorous wife, private planes and helicopters, and a property business worth, at its peak in 2007, €450m. But one morning in January, he snapped. The first sign that anything was wrong was when neighbours saw him walking round the garden of his €5m house in Holmeleigh, an exclusive residential enclave of Dublin, in pyjamas. When his wife, Annette, returned home just before 9am after taking the couple’s two sons to school, she found her husband dead in the hall. He had shot himself in the head with a shotgun. The morning papers revealed the value of his business had collapsed to as little as €14m, with debts of €18m.

Rocca’s funeral was not simply a wake for one man. To many, the bells that rang out as the hearse pulled away were a lament for a nation. The Celtic tiger that transformed a beer-soaked backwater into the envy of every small nation with a thirst for a makeover is dead, and its cubs are looking to emigrate because they see no future. The signs, big and small, are everywhere. One bank, Anglo Irish, the country’s third largest, has been nationalised, and the government is negotiating bail-outs for two more. Foreign firms, notably Dell computers, are shutting factories. The family china — Waterford Wedgwood — is being sold off. Guinness has put its plans to build a €1 billion “super-brewery” into cold storage. Crowds at the horse races are down 10% and on-course betting has dropped 18%. In the most remarkable reversal of economic fortune, Poland, whose workers flocked to Ireland in the go-go years, has started hosting job fairs to attract unemployed Irish workers to Warsaw. The ad slogan? “Come to the new Ireland.”

Paddies heading for Poland? Surely it can’t be that bad? Unfortunately, it can. If you think the British economy is a mess, spare a thought for the neighbours. Ireland had a bigger boom and is now suffering a bigger bust, with fewer resources to dig itself out of the hole. In his cramped, pamphlet-strewn office on the banks of the Liffey, Professor John FitzGerald, an economist at the Economic and Social Res-earch Institute and the son of the former taoiseach, Garret Fitz-Gerald, confirms that salaries are falling, house prices have slumped by a third, the stock market is at a 14-year low, and unemployment is set to hit 12% by the end of the year. Ireland recently became the first western European country to have its top-notch credit rating downgraded from stable to negative by the ratings agencies Moody’s and Standard & Poor’s. This year, the budget deficit will reach 10%, the highest in the EU, and the government concedes the economy will shrink by 6.5%, compared with 2-3% in the UK. “This is a dramatically bigger shock for Ireland than for the UK,” FitzGerald says.

Things are so bad that Nouriel Roubini, the New York banker nicknamed Dr Doom because he predicted the global crash, says Ireland could be the next country to go bust after Iceland. He points out that Ireland got richer faster than Iceland, in much the same way, and now has many of the same problems. “If a big institution in Ireland were in trouble,” he says, “the country does not have the resources to bail them out.” Government pledges to support the banking sector by honouring all the country’s bank deposits amount to 250% of annual economic output. Ministers acknowledge the risk. In the words of Brian Lenihan, finance minister, the eco-nomy has “fallen off a cliff”. Here, MPs are so worried about default that they are advising British savers to withdraw their money from Post Office accounts, whose savings scheme is run by the Bank of Ireland. This being Ire-land, there’s a joke about it all. “What’s the capital of Ireland?” they ask. “Oh, about 20 euros.”

Those who have lost their jobs are hardly laughing. Ciaran Costello’s voice betrays anguish bordering on physical pain when he tells a tale typical of Ireland’s boom and bust. He fed and rode the Celtic tiger. He got the job, accounts manager for a luxury housing developer; the house, a three-bedroom semi in Longford, west of Dublin; and the car, a Mercedes. But then the beast devoured him. Last autumn the developer went bust and he was laid off. He could not keep up payments on the house or the car and they were repossessed. Now back home with his parents, he has decided his best business plan is to leave, but he can’t follow in his grandfather’s footsteps and head for the US “because the arse has fallen out of the economy there, too”. Instead, he’s heading for Beijing. “I’ve got a friend there who is making good money as a driver, and he says he can set me up with something. If that doesn’t work, I’ll try Australia. Living here is like whistling in a graveyard.”

What makes Ireland’s fall particularly depressing — and, to men like Costello, bewildering — is that not so long ago the Emerald Isle was the best place to live in Europe. Officially. In 2004 The Economist declared that the country’s low-tax, high-growth economy, its high-quality education and natural beauty gave it an overall quality of life unmatched anywhere in the world. The country “combines the most desirable elements of the new, such as low unemployment… with the preservation of elements of the old, such as stable family and community life,” it said. The data certainly appeared to confirm that a threadbare land of saints and scholars had become the Singapore of Europe. There was record investment in farming and infrastructure. Low taxes and a skilled workforce were attracting foreign investment by high-tech manufacturers. Jobs were so plentiful that, for the first time in modern Irish history, more people were arriving in the country than leaving. The number of foreign workers rose from 1% of the population to over 12%, sending it towards levels last seen before the potato famine.

The boom changed much more than the economy: it transformed traditional Irish society, culture, even religion. John O’Keeffe saw the changes more clearly than most. He left Dublin in 1986 and worked for Swiss Bank Corporation and Barings in London before returning in 2000 to a country where only the rain seemed familiar. Sitting at the bar of the Residence private members’ club, O’Keeffe, now the editor of Irish Entrepreneur, says: “I left a godly land of broke but merry alcoholics and came back to a place where people who used to dig potatoes were buying luxury apartments sight-unseen and driving Porsches. It was worse than the 1980s boom that I lived through in London because it was so un-Irish, so the selfishness, the vulgarity seemed worse. There were more divorces. On a Sunday the shops were full with people who seemed to worship Versace in the way our grandmothers worshipped the Virgin Mary.”

Ireland was livin’ it large and lovin’ it. But there was one big problem: what began as a boom was becoming a binge, and the worst sort — a property binge. “We started well enough. Ireland needed to grow, to play catch-up with the rest of Europe, but we ended up putting all our eggs in one basket,” says John Gilligan, mayor of Limerick. “Then the basket broke.” The uncomfortable truth is that Ireland is an economic model, but not in the way The Economist reported. In recent years, it has become a case study of how a small nation should not handle new-found riches. To understand why, you need to know about Section 23 and about the Galway Tent. But first you have to go to Doheny & Nesbitt, a pub in Dublin, take a seat in one of the oak snugs and order a pint of the black stuff. It’s here that it all started.

Doheny & Nesbitt is around the corner from the main government ministries and Ireland’s leading banks. Every night, politicians, bankers, businessmen and the odd holy man turn up to drink. “It’s the kind of place where you bump into the finance minister in the gents,” says Ronan Lyons, chief economist at Ireland’s biggest property website, Daft.ie, who is a regular. Every night conversation turns to politics and business. In the late 1980s, with the euro promising currency stability, a clutch of economists, politicians and civil servants planted the philosophical seeds for the Irish economic miracle. What if, their beery musings went, Ireland slashed taxes, reduced import duties and embraced foreign investment; then adopted the euro, giving it access to a much bigger capital market and enabling it to enjoy increased investment from Brussels and low interest rates set by the European Central Bank (ECB); and finally threw in traditional advantages — cheap labour, the English language and GMT? In the new globalised market, surely this would create economic alchemy, turning the base metal of Irish productivity into pure (Kerry) gold?

The new economic model, known as the “Doheny & Nesbitt School”, soon became government policy. It brought huge benefits. Thanks to EU investment, so many new roads and railways were built that the wealthier residents of the north looked over the border in envy for the first time. Low taxes and low interest rates lured foreign multinationals, notably high-tech giants such as Intel and Google, pharmaceutical firms and financial-services outfits, which chose Ireland as a platform from which to operate in the eurozone. A new tax rule, Section 23, encouraged developers to build, by allowing them to offset construction costs against tax. With banks offering low-interest mortgages with no money down, Ireland’s construction industry exploded. Developers were so successful they became cultural figures, much like the hedge-fund and private-equity elite in London and New York. Come August, many were found hobnobbing with decision-makers in the Fianna Fail tent at the Galway Races, a pint of Guinness in one hand and a champagne flute in the other.

There’s no doubt that the Doheny & Nesbitt strategy was the right policy, in the right place, at the right time. “We rode global trends perfectly for 15 years,” says Lyons. From 1987 to 2003, gross domestic product per person rose from 70% of the EU average to 136%, while unemployment sank to 4% from 17%. GDP growth regularly touched an astonishing 10% a year — three times the EU average. The number of euro millionaires rose a hundredfold. Ireland was transformed from one of the poorest countries in western Europe into the fourth richest country in the Organisation for Economic Cooperation and Development, wealthier than Britain or the US. Thanks to growing tax revenue, the government could increase its spending dramatically and still run a fiscal surplus. It was, it seemed, wealth built upon wealth.

Dudess wrote: »

What in the name of Christ are you talking about? Could you please link to this terrible Financial Times story? Or... is it possible that they were literally just stating the facts - that Ireland's economy is ****ed? Can you face up to that at all? Again, we're ****ed. You seem to be in denial about the recession, on top of everything else. Where's your evidence that these journalists are anti Irish or even Tory?

The state of the economy is what is damaging us. Jesus ****ing wept... If ever there was an appropriate time for the "banging your head against a brick wall" or facepalm smiley (as suggested in Feedback).
Just because you have an axe to grind against the British (LOL - move on, seriously) there's no need to blow this out of such proportion.

Brian Lenihan is the Minister for Finance in a screwed economy - of course he'll do what he can to minimise the damage (i.e. the truth being reported).

Well that's far more reasonable than the stuff you've been saying already. I'd agree with you - I don't have time for the way people make negative statements about Irish people here quite a lot, or they say they're ashamed to be Irish and all that nonsense. As I said, I was born here, I don't feel in any way proud of that, but by the same token, I certainly don't feel ashamed either.
Urging people not to hate the British - especially with such spurious reasoning as here - is not akin though to agreeing with anti Irish statements.