Ireland's Economic Woes Closely Linked To Europe Unlike Portugal, Italy, Greece, and Spain, Ireland hasn't suffered a downgrade by the credit rating agencies. But many in Ireland believe their government's austerity measures, which kept interest rates manageable, have made its perilous economic condition worse.
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Ireland's Economic Woes Closely Linked To Europe

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Ireland's Economic Woes Closely Linked To Europe

Ireland's Economic Woes Closely Linked To Europe

Ireland's Economic Woes Closely Linked To Europe

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  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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Gabriel McQuillin is a public school employee in Dublin who has had his pay cut in the wake of the Irish fiscal crisis. Jim Zarroli/NPR hide caption

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Jim Zarroli/NPR

Until not long ago, Gabriel McQuillin would drive the 70 miles between Dublin and the village where he grew up several times a week, to coach a local sports team. These days, he can't afford the gas and tolls.

McQuillin, 35, and his wife both work in Ireland's public school system. In the wake of the Irish fiscal crisis, they have had to endure pay cuts totaling about 20 percent, reductions in benefits and increases in taxes.

"Yeah, people are angry about the fact that our wages are getting cut. You're only human," McQuillin says, sitting in the living room of his small South Dublin house, while a soccer match blares on a large-screen TV. "But people are very angry about the fact that there doesn't seem to be any justice coming down the line for those who caused it."

For ordinary workers like McQuillin, the suddenness of Ireland's fiscal collapse has been both scary and confusing.

Until two years ago, Ireland was enjoying a long, unprecedented economic expansion, fed by a surge in productivity, a sharp influx of foreign money and a property boom that made Florida's look tame. U.S. companies like Pfizer, Microsoft and Google set up operations in the country, drawn by low taxes and an educated, English-speaking workforce. Public servants like McQuillin saw their wages increase sharply, and many used the money to buy houses.

A Sudden Turnaround

Then came the worldwide credit crisis, touched off by the September 2008 collapse of Lehman Brothers, which exposed just how tenuous Ireland's boom was.

Like their counterparts in the United States and elsewhere, Irish banks turned out to be heavily weighed down by bad property deals and had to be propped up by the government. But Ireland's government depends heavily on revenues from property sales, and as the real estate market dried up, Dublin faced a yawning budget deficit.

"It was costing roughly 50 billion euros to run the Irish state every year, and the tax [revenue] had collapsed to about 30 billion euros," says Fintan O'Toole, columnist for the The Irish Times. "So you have to borrow."

But with the collapse of the credit markets, investors were fleeing countries with huge debt problems, and governments like Ireland's had to pay sharply higher interest rates, if they could borrow at all. Once touted as a "Celtic Tiger," Ireland was now one of the PIIGS, a new acronym for Europe's biggest basket cases: Portugal, Ireland, Italy, Greece and Spain.

"Very quickly, within a few months, we developed a very big fiscal problem. Our banks were close to collapse, and we were in a very acute crisis," says Philip Lane, professor of international macroeconomics at Trinity College Dublin. "And because we were in a crisis that got very deep very quickly, we felt we had to respond quickly."

Tough Medicine

What Ireland did was embark on some of the same draconian cuts in benefits and spending now agreed to by Greece. During the boom, Ireland had spent heavily on some long-needed infrastructure spending, modernizing schools and building new roads; such programs now had to be scaled back if not stopped entirely.

While other countries around the world were pouring money into their economies to stimulate spending, Ireland had no choice but to pull back.

"You ended up with governments doing what they're not supposed to do, which is cutting expenditures and cutting wages, taking money out of the economy right as the crisis was unfolding," says O'Toole.

Many in Ireland believe the cuts have made Ireland's perilous economic condition — unemployment is well over 13 percent — even more dire.

"The effects of the cuts right across the board has been, I suppose, that the consumer has stopped spending," says Mark Fielding, chief executive of the Irish Small and Medium Enterprises Association, a lobbying group for businesses.

Cash-strapped consumers are now saving about 12 percent of their take-home pay, compared with about 2 percent before, Fielding says, adding: "So that's a massive increase, which is having an effect on the retail trade and then right down the food chain through the distribution and manufacturers. So that has led to a reduction [in spending] right across the board."

Jack O'Connor, general president of SIPTU, Ireland's largest trade union, says: "It's closing down the domestic economy."

He concedes that the credit crisis left the government with huge debt problems and little room to maneuver. But O'Connor says the burden of paying for Ireland's excesses should have fallen much more heavily on high earners who benefited so much from the boom. The crisis "doesn't justify imposing the entire burden on working people and on people who depend on public services," he says.

Financial Markets React

Ireland's austerity measures have succeeded in keeping interest rates at a manageable level. When Greece's rates hovered near 10 percent, Ireland's stood at around 6 percent. Unlike its fellow PIIGS, Ireland hasn't suffered a downgrade by the credit rating agencies.

But rates did creep up a bit in recent weeks, as investors grew more nervous about the European economy and the possibility that Greece might default on its debts. It's a vivid illustration of just how closely linked Ireland's fate is to the rest of Europe.

"This game isn't over. This is a domino effect," says David McWilliams, a popular writer and economist. He says the bank bailout has saddled the Irish people with a debt load that is enormous for a country of 4 million people, and it's only a matter of time before the world realizes it.

"We're in a much worse position than Greece," he says. "But we speak English. We have Google, Intel, Microsoft and Facebook's headquarters here. And we spin a better yarn. But we're actually in exactly the same position — if not worse — than Greece."