Unlike the majority of countries affected by the Euro Zone Crisis, Ireland did not run into difficulties due to government overspending. The Euro Zone crisis hit Ireland originally in the form of a property bubble which started in the 1990’s and was known as a period called the “Celtic Tiger”. Ireland started to expand rapidly in the 1990’s and well into the 2000’s with roughly 75,000 new housing units being built every year and amazing GDP growth rates. This also meant rising house costs to pay for these new units and combined with 12% of Ireland’s workforce being employed in the construction industry, this set the stage for a large collapse. Ireland’s prices eventually started to rise too high too quickly and peaked in 2006 eventually leading to the “burst” of this property bubble in 2007.
Up to this point, Ireland’s future did not look too bad. However, when the bubble burst, a large share of the workforce lost their jobs and an even larger percentage were unable to pay their mortgages, resulting in an alarming amount of defaulting loans. Similar to our housing crisis of the mid-2000’s, Ireland’s banks had to pick up the slack in the loans.
This is where the government comes into play; the Irish government had previously guaranteed the six main Irish banks meaning the banks losses were the government’s losses. The banks lost 100 billion following the collapse, unemployment rates rose from 4% to 14% and because the government guaranteed the banks, Ireland went from having a surplus to a 32% GDP deficit.
While bank losses continued to rise and credit ratings continued to fall, the Irish government had to seek assistance from the EU and IMF resulting in a 67.5 billion (Euro) “bailout” agreement. Of this, 17.5 billion came directly from Ireland’s own reserves and pensions. Roughly 34 billion went directly into Ireland’s financial sector. Stress tests in 2011 showed that only about half of this actually went into the financial sector. Ireland’s part of the deal was a proposed...