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‘The financial and economic crisis in Ireland had nothing to do with the
fact that the country belongs to the Eurozone
...
’ Explain why this
statement is or is not valid
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HASHEM PESARAN, L
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SMITH
ART6: What if the euro had never been launched? A counterfactual analysis of the macroeconomic
impact of euro membership, Dubois, Hericourt and Mignon
ART7: Better Off without the Euro? Evaluating Monetary Policy and Macroeconomic Performance
for Denmark, Sweden and the UK
ART8: The UK and the Euro in the Aftermath of the Global Financial Crisis, Leila Simona Talani
2011
ART9: Law, Fiscal Federalism, and Austerity Author(s): R
...
Murphy, 2011
ART11: Lessons from the Irish Collapse: Taking an International Political Economy Approach
Author(s): Peadar Kirby, 2010
ART12: Chapter Title: Republic of Ireland: from Celtic tiger to recession victim Chapter Author(s):
Adam Masters 2009
ART13: THE IRISH CRASH IN GLOBAL CONTEXT Author(s): Terrence McDonough, 2010
ART14: Sutherland, P
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, 10 Years of the Euro: New
Perspectives for Britain, London: John Stevens
...
Entry involves a long-term commitment to
restrict UK nominal exchange rates and interest rates to be the same as those of the euro area
...
” p68
"The exchange rate measures are quarterly percentage changes of the EA and UK exchange rate
against the US dollar
...
” p68
"In 1998 UK short interest rates were 6
...
5%
per annum
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” p82
ART6: "our main findings show that monetary unification promoted lower interest rates and higher
output in most EA countries, relatively to a situation where national monetary policies would have
fol- lowed a German-type one
...
” p2
"Regarding inter- est rates, gaps tend to be negative before 1999 for a huge number of countries,
indicating that interest rates would be once again lower under the single currency regime than
under a “British style” monetary policy
...
” p7
"After 1999, prices are higher under the single currency regime in Austria, Finland, France, Italy,
Portugal and Spain; they are lower in Belgium and Germany, while Greece, Ireland, Luxembourg
and Netherlands do not display any significant gap” p8
"To sum it up, the British counterfactual features mainly higher interest rates and depreciating
exchange rates, relatively to the GVAR with single currency
...
Finally, prices do not display very high differences between the two
regimes
...
Interestingly, our simulations emphasize that the single currency regime probably did not
have a massive impact on price developments, comparatively to credible alternative monetary
policy regimes
...
"
"Better monetary policy is generally associated with greater price stabil- ity; whether it is the a
result of increased central bank independence, a shift towards an in ation-targeting (IT) regime, or
structural changes in the way that monetary authorities conduct policy (in particular, increased
central bank trans- parency and accountability” p1
"In that spirit, this paper asks how much of the improvement in macroeconomic performance
experienced by Denmark, Sweden, and the U
...
over the period 1999-2006 is due to increased
efficiency in the conduct of independent monetary policy
...
” p2

"The results from these two sections suggest that, while independent monetary policy played a key
role in contributing towards the reduction in in ation and real growth uctuations for Denmark,
Sweden, and the U
...
, none of these countries would have experi- enced larger macroeconomic
performance gains if they had joined the EMU in 1999
...
K
...
K
...
al, 2006)
...
” p12-13
"These results con︎rm that Sweden, the U
...
, and, to a lesser extent, Denmark, have accomplished
a successful stabilization of in ation and economic activity since 1999, much of it due to the
implementation of an e!cient, independent monetary policy
...
K
...
K
...
The gain in macroeconomic per- formance from adopting
the Euro would have been lower by about 10-11% for Sweden, and roughly 7-8% in the case of the
U
...
” p17
"Overall, these results suggest that Sweden and the U
...
have been better o︎ stabilizing in ation
and real growth uctuations while conducting independent monetary policy, than they would have if
they had decided to enter the 3rd stage of the Maastricht Agreement
...
None of these circumstances
applies today
...
” p128
"The main new finding of this analysis is that the global financial crisis is in itself a powerful and
sufficient argument for the UK to enter the EMU as soon as possible
...
” p129
"Moreover, it is apparent to the author that the Bank of England has mis- judged the situation and
is endangering British economic future with its too low interest rate policy
...
: 16)
...
Indeed, the role of the Central Bank as the lender of last resort, which has

been highlighted by the current situation, has also put in evidence the need for the Central Bank to
exert a closer control on the banking and financial institutions
...
And even if the UK was better off staying outside during the first ten years of the euro,
it is now time to rethink this decision (Münchau, 2009: 136) according to the opinion of Wolfang
Münchau
...
First of all,
finance will not any longer be the main specialization of Britain; the country will have to find a new
one
...
In Europe, this would mean that
accession to the euro zone would continue, and all of Eastern Europe EU, plus Denmark and
Iceland, will join
...
The exchange rate of the
pound would be more volatile; investors would ask higher interest rates
...
Concluding, the external situation will change so dramatically that
the past benefits of staying out will be wiped out
...
: 140)
...
” p133
"In 1998, as today, British participation in EMU certainly undermined this capacity of the City of
London by first of all imposing restric- tions on the working of its markets and institutions
...
Moreover, entry into the EMU will
affect the City’s international primacy by eliminat- ing the possibility for London to keep its role as
the main off-shore market in euro or euro-denominated assets,18 a role that, were the UK to join
EMU, would certainly be developed by one of its major world competitors
...
These are usually included in the all-embracing expression of loss of sovereignty, and in the
case of the City of London this would mean losing the possibility to influence domestic monetary
and exchange rate policies
...
” p139
ART14: 
"The central argument deployed against Britain’s membership was
always the benefit of an independent monetary policy
...
 At the time of launch,
the ECB’s interest rate was half that set by the Bank of England
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” p184
"According to recent IMF calculations, the UK is one of the countries which experienced
the largest rise in house prices unexplained by fundamentals such as
demography and housing supply, but so too are Ireland, France and
Spain
...
 A wider range of
factors than interest rate policy
alone, including debt levels and the structure of mortgage finance,
seems to explain differences between countries in their recent
housing market experience
...

The pound has fallen to successive record lows against the Euro (it
has lost more than a tenth of its value against the Euro and fallen
by nearly 18% against a basket of major currencies this year)
...
” p185
"As an immediate mechanism for responding to a severe shock to
the economy, the scope to adjust by devaluation might be very
welcome
...
” p186
"We have learned the hard way
through the course of 2008 that the interlinked global economy
fares better with co-ordinated policies
...
” p60
ART2:
“Ireland is at the top of the Organization for Economic Cooperation and Development's (OECD's)
league table for economic growth, with GDP growth of 10
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This is compared with 2
...
6 percent in the United States, growth
rates around 2 percent in other European countries such as Spain and Germany, and 3 percent for
Finland and Spain” p94
Factors which stimulated economic growth:
•
the careful use of EU social and cohesion funds; *
•
the single internal market in Europe (single European market [SEM]); *
•
the increasing demand for PC hardware and software, produced in the main by U
...

companies (the SEM came into being at a time when PC shipments were experiencing 20 percent
annual growth, further fuelled by the 1992 launch by Microsoft of Windows 3
...
 p100

Cogan and McDevitt (2000) listed the following factors: *
•
fiscal policy, *
•
national wage agreements, *
•
SEM, *
•
EU structural funds, *
•
institutional learning, *
•
foreign direct investment, *
•
human capital, and *
•
demographic trends p100
ART10: "the beginning of Ireland’s latest and most spectacular boom–bust cycle can be dated
back to the incoming Fianna Fáil administration of 1987, which implemented a swingeing austerity
budget immediately on taking office to bring the decade-long problem of the country’s large foreign
debt under control
...
While most accounts of the Celtic Tiger period have focused on the policies that helped bring
it about (such as the success in winning high levels of foreign investment, the ways in which EU
structural and cohesion funds were spent to support the boom, and the role of social partnership in
engineering a consensus between employers and the trade unions),” p71
"The following section examines in more detail how the changing political priorities of parties in
power helped undermine the foundations on which the boom was initially built, focusing particularly
on the role that property development began to play from the early 2000s, and how virtually the
entire national banking system came to be implicated
...
Both accumulation and distribution rely centrally on the relationship of state and
market and for this reason they constitute a political economy model
...
Viewed from a
distance, they saw the Irish state as having played an active role in winning high levels of foreign
investment in cutting-edge high-tech sectors, thereby upgrading the industrial and services
economy and coordinating policy making between the main stakeholders through social
partnership, resulting in a spectacular increase in living standards and employment
...
Not only would this have helped
avoid the collapse of 2007, but it would have created a very different Irish society, one less
obsessed by growth for its own sake and more attentive to the need to manage growth carefully
...
They write that
the response of government supervisors ‘was not hands-on or pre-emptive’, in contrast with the
experience in some countries where supervisors ‘acted to stem the tide’ when faced with evident
risks (ibid
...
They identify four key problems with government supervision:
1
...

governance failures were not addressed sufficiently toughly;
3
...

key facts that should have been of central interest to supervisors were not available
to policy makers in a timely manner at the point at which the crisis began to unroll (ibid
...
”
p79
"The report notes the absence of forceful warnings from the Central Bank of Ireland on macrofinancial risks ‘in which financial stability analysis should have sounded the alarm bells loudly’
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” p79
"Again, the nature of regulation was directly caused by the FF–PD coalition, which reformed the
financial regulatory system, putting in place a principles-based regulatory system under which
banks and financial firms would abide by agreed codes of behaviour rather than having these
imposed on them and supervised by regulatory authorities
...
It seems that there were key weaknesses in some banks’ internal risk management
in areas such as stress-testing; the assessment of credit risks; and in some cases major lapses in
the documentation of loans – and that these were factors that allowed vulnerabilities to develop
...
It began with a blanket guarantee of the whole
banking system, including international bondholders, announced early in the morning of 30
September 2008 by the government, which feared a run on the banks once markets opened that
day
...
”
p85
ART12: "19 December: Seán FitzPatrick, chairman of the Anglo Irish Bank (AIB), resigns
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The other institution is believed to be the Irish Nationwide Building Society
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In response, Finance Minister Lenihan announces
plans to recapitalise AIB and the Bank of Ireland, take effective control of AIB and clear out the
remaining board members
...
By 2006–07, at the peak of the
bubble in house prices, construction accounted for 23 per cent of Irish GDP and Ireland was
building 21 housing units per 1,000 population, four-and-a-half times as much as in Britain; one
employee in eight in the Irish economy was directly employed in construction (A
...
” p80
"As Adshead and Robinson have argued, government policies that helped fuel the housing boom
actively diverted economic resources from more productive investment, especially in small and
medium-sized enterprises (SMEs) (Adshead and Robinson 2009: 14)
...
Furthermore, despite gains by the left in the 2011 election, it is difficult to argue that
there has been a fundamental change in Irish political elites
...
It looks as if the Irish model may well
survive the crisis
...
com crash of 2001 had undermined the key role that the US information
technology sector played in creating the Tiger boom, the Irish economy had come to be
unsustainably dependent on house building and private consumption
...
Government subsidies fuelled a frenzy of building around the country, banks lent
recklessly to developers to buy land at grossly inflated prices and to customers to buy the houses
and apartments built on that land at equally high prices
...
” p47

Reaction of banks and gov during crash
ART1: 
"In Ireland, Fianna Fail electoral domination, which had seemed eternal, has ended – one
consequence of a terribly mishandled and corrupt housing bubble, itself the product of Americanstyle public policy mismanagement
...
The first involved the collapse of major AngloAmerican financial institutions that led to a credit crisis and a crippling of the ‘real economy’
...
” p43
"The collapse of the global financial sector in 2008 obliged Europe to acknowledge the
spread of dubious American financial practices to their banking systems, however
...
The European Central Bank (ECB) provided liquidity to keep
credit flowing and closely coordinated its actions with other central banks (Trichet 2010; Quaglia et
al
...
”
p51
"Bailouts came first, with banks sometimes recapitalized or semi-nationalized; deposits were
guaranteed; and private banks consolidated and merged
...
3 and 4 percent of EU GDP, with
special plans for newer central and eastern European members
...
” p51
"EMU, in stark contrast, was a single currency without a central government, with multiple national
jurisdictions, and a European Central Bank (ECB) with a legal mandate restricted to fighting
inflation
...
8
Past experience with intergovernmental processes indicated that they took a signif icant amount of
time, let to incremental decision-making, and often produced suboptimal compromises
...
It followed that
the institutional arrangements for responding to a crisis could matter as much as actual policies
themselves
...
Eurozone leaders,
faced with threats from the stock market, finally agreed in May 2010 to set up a temporary €750
billion European Financial Stability Facility (EFSF) that would provide conditional loans to menaced
Eurozone countries at ‘non-concessional’ interest rates that would quickly prove to be too high
...
Salvaging the Eurozone has involved clumsy in- tergovernmental decisionmaking that has led to an imposition of harsh policies by some on others
...
this chapter will argue that to be properly understood it needs to be situated in the international,
and specifically European, crisis of capitalism
...

None of the unprecedented economic ‘solutions’ are discussed or approved beyond a small
number of government insiders and unelected, unaccountable bureaucrats
...
5 A catastrophic depression was only prevented by a series of determined state
interventions, primarily in the form of bank bailouts, which involved an enormous transfer of
wealth from the public – in the form of the state – to private corporations and individ- uals
...
totals over $14
trillion or almost a quarter of global GDP’
...
” p87
"In Europe, countries like Greece, Portugal and Ireland dramatically cut their budgets but instead of
austerity introducing the road to recovery, their economies shrank and the debt levels
increased
...
13” p88
"The structure of inter-European lending over the previous decade of monetary union meant that
‘core’ banks and financial institutions held large swathes of bonds issued by ‘peripheral’ banks,
particularly from Spain and Ireland
...
” p90
"Peadar Kirby argues that it was the ECB’s desire to divest itself of this burden of responsibility that
led it ‘to discontinue lending to Irish banks and seek a new arrangement
...
24” p90
"More than half of the eurozone’s population has fallen into perpetual recession, courtesy of
the European Union’s centrally enforced austerity policies
...
The response to the crisis by the European ruling classes – both core and periphery –
has been profoundly neolib- eral: cutting public spending, raising indirect taxes, reducing wages,
attacking the welfare state, privatising public assets and further market liberalisations
...
” p94
"the now ‘common sense’ assumption that for capitalism to operate efficiently it requires an
unregulated market that is constitutionally protected against political interference and
electoral pressures and preferably controlled by politi- cally insulated institutions like, for
example, in Europe, the European Commission or, in Ireland, the Fiscal Advisory Council
...
The Treaty requires member states to meet harsh ‘structural
deficit’ targets and to reduce their debt to GDP ratio to 60 per cent
...
48 Member states that do not have
balanced budgets will be forced to surrender their budgetary and economic policies to Brussels
...
”5” p247
"There is little doubt that the European Union bears some responsibility for the financial
crisis, but so too do the member states, both collectively and individually
...
Insofar as there
was an asymmetry between EU power over monetary (as opposed to economic) union, this
reflected what member states were willing to accept
...
22”
p255
"They understood that the economic health of individual Member State economies could have a
marked impact on the valuation of the euro, hence the need for some oversight and coordination of
national economic policy
...
This led to the plethora of measures enacted to tighten centralized
control over national budgets and national banks through the six-pack, the two-pack, and the Fiscal
Compact
...
The
states had a major role in shaping the Maastricht architecture on the EMU and in determining how
it was applied in the years thereafter
...
The
sovereign debt crisis was causally related to the very weakness of the EU controls over
economic policy, which meant that there was insufficient firepower at the EU level to stem
the tide of sovereign debt or deal with the problem when the dams broke
...
” p257
"Larosiere Report
...
” p258
"Sergio Fabbrini has … contends that, since the Maastricht Treaty, there have been two modes of
decision making embedded in the treaties: supranational and intergovernmental
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This was exemplified by
the provisions on economic union, where there was much talk of coordination and cooperation
...
” p259
"The European Union put in place a range of measures to provide “assistance” to member states
that were in severe economic trouble as a result of the Euro-crisis
...
This means thinking hard about the
constitutional responsibility of member states in this regard, rather than working on the explicit or
implicit assumption that the fault resides entirely with the European Union
...
Indeed, the role of the Central Bank as the lender of last resort,
which has been highlighted by the current situation, has also put in evidence the need for the
Central Bank to exert a closer control on the banking and financial institutions
...
The 2012 Fiscal Compact Treaty, one of the lynchpins of this package of reforms,
requires states to incorporate judicially enforceable balanced-budget rules into national
law
...
” p379
"The Eurozone crisis exposed, in dramatic fashion, the inadequacies of the economic governance
regime put in place when the Euro common currency was created
...
The Maastricht
Treaty, which created the original legal framework for the Eurozone common currency area, had
established limits on deficit and debt levels for Eurozone states
...
6 However, this “Maastricht regime”
of fiscal governance left the enforcement of these rules mostly up to political actors in the
Commission and Council—with a limited role for European courts
...
7” p380
"First, the Maastricht Treaty included a no- bailout clause (Article 104b, now Article 125 of the
Treaty of the Functioning of the European Union (TFEU)), which stipulated that neither the
Community nor any individual Member State could bailout (i
...
, assume the debts of) another
Member State
...
” p384
"So, Germany and other lender countries faced a choice that was not simply between providing
bailouts to governments of peripheral Eurozone economies or not providing bailouts
...
For countries like Germany and France, it was
politically more palatable to bail out debtor countries than to let them default and then have
to bail out their own banks
...
At the behest of Germany and other lender countries, the European Union put in
place a new regime of Eurozone fiscal governance
...
49 This treaty was
tied to the European Union’s new bailout regime because EU states could only qualify for support
from the European Stability Mechanism if they ratified the Fiscal Compact
...
” p392

Failure and shortcoming of policy at Irish gov level
ART1:
"In Ireland, Fianna Fail electoral domination, which had seemed eternal, has ended – one
consequence of a terribly mishandled and corrupt housing bubble, itself the product of Americanstyle public policy mismanagement
...
In the absence of any self-sustaining recovery, economies remain heavily
dependent on state action, if not, Alex Callin- icos argues, in the shape of fiscal stimuli, then in the
form of the cheap money policies that are still being pursued by global central banks
...
” p88
"The supposed cure for this ‘Debt’ was austerity – the policy of cutting the state’s spending in order
to promote economic growth
...
Jobs created by stimulus spending are offset by jobs lost
from the decline in private spending
...
The Irish state guaranteed a total of €440 billion worth of
banking debt, thereby ensuring that the fate of the Irish state and the fate of the Irish banking
system would be intimately entwined
...
16” p89
Simon Carswell: "‘The government’s guarantee of the Irish banks was the biggest financial
decision taken in the history of the state
...
This amounted to more than twice the economic output of the country and
over ten times the national debt
...
It was a huge gamble
...
” p89
"The agreement locked Ireland into a very specific neo-liberal economic model dominated by
policies that have imposed immense hardship on working people, communities, the poorest and
the most vulnerable sections of society, by focusing almost exclusively on indirect tax
increases and expenditure cuts, rather than on job creation or economic stimulus
...
4 per cent
over three years, while the richest 10 per cent of the population experienced a fall of only 11
...
33” p92
ART4: "Suffice it to say that the disjunction between power and electoral accountability is the most
potent aspect of the democracy deficit argument
...
This means thinking hard about the
constitutional responsibility of member states in this regard, rather than working on the explicit or
implicit assumption that the fault resides entirely with the European Union
...
” p383
ART10: 
"Three main weaknesses can be identified
...
 As Bradley has written, Ireland inverted the normal
process of development – instead of generating a wealth-building strategy for the Irish nation, the
state simply adapted to the needs of the firms in the global corporate environment (Bradley
2002)
...
While this may have had some successes, it fails to build
resilient capacity in the Irish economy and perpetuates the vulnerabilities that are partly
responsible for the deep recession in which Ireland now finds itself, since its successes are largely
commercialised by multinationals rather than resulting in strong indigenous companies (Kirby
2010)
...
While
the increased living standards and improved employment opportunities generated by the Irish
model improved the lives of many, less attention was focused on the increases in relative poverty
and in inequality that characterised the boom years in Ireland or on the failures to invest
adequately in quality social services, especially for the most marginalised
...
” p75-6
3) "A third weakness of the Irish model concerns the role of the state
...
” p77
"As described by two international financial experts, Klaus Regling and Max Watson, in a report
commissioned by the Irish minister for finance: ‘Ireland’s banking crisis bears the clear imprint of
global influences, yet it was in crucial ways “home-made”
...
” p78
"On revenue, they chart the ways that the composition of tax revenue had shifted gradually from
stable sources of taxation, like personal income tax and VAT/ excise taxes, to cyclical taxes, such
as corporation tax, stamp duty and capital gains tax
...
” p78

"On state regulation of the banks, Regling and Watson found multiple failures
...
: 6)
...

supervisory culture was insufficiently intrusive, and staff resources were seriously
inadequate for the hands-on approach that was needed;
2
...

macro-financial vulnerabilities were underestimated;
4
...
: 36–42)
...
With
reference to IMF, OECD and ECB reports on the Irish banking sector, they add that ‘in fairness
external surveillance sources fared little better’
...
” p79
"The role that property development took on as the engine of growth in the Irish economy in the
2000s reflects both the priorities of government policy (subsidies and tax breaks, as well as Fianna
Fáil’s traditional close links with property developers dating back to the 1960s), and also the lack of
substantial alternative investment opportunities in indigenous industry and services, reflecting the
extreme dependence of the Irish economy on multinationals
...
Sweeney 2009:
23, 24)
...
” p81
"Firstly, the Fianna Fáil–Green coalition government took an approach to the banking crisis that
served to deepen rather than resolve it
...
Covering
customer deposits and banks’ own borrowings to a total of €440 billion and called the cheapest
banking bailout in history by the then minister for finance, the late Brian Lenihan, it effectively
handed Irish taxpayers the bill for the reckless practices of the Irish banking sector during the
economic boom, a bill that grew exponentially over the 30 subsequent months
...
” p85
"Along with the stress test results, the new government also announced a decisive restructuring of
the whole banking sector, based on two ‘pillar banks’, Bank of Ireland and AIB Bank, merged with a
smaller building society, the EBS
...
” p86

“On the tax side, most of the proposals hit low and average-income earners rather than highincome earners, as the central measure was a reduction in the income levels at which people
begin to pay tax, from €18,300 to €15,300 by the end of the plan
...
com crash of 2001 had undermined the key role that the US information technology
sector played in creating the Tiger boom, the Irish economy had come to be unsustainably
dependent on house building and private consumption
...
Government subsidies
fuelled a frenzy of building around the country, banks lent recklessly to developers to buy land at
grossly inflated prices and to customers to buy the houses and apartments built on that land at
equally high prices
...
” p47
"Over these years, inflation rose to the highest levels in the euro zone
...
As long
as high levels of growth continued, government tax receipts held up; as soon as growth declined,
however, tax revenues slumped disastrously” p47
ART13: "A rancorous domestic debate has opened up over who or what was responsible for the
debacle, with the government emphasizing the international aspects of the crisis, while opposition
parties sought to lay the blame at the feet of a domestic cabal of developers, bankers and
governing party politicians

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