The Irish crisis: a complete failure for neo-liberalism

3 January 2011 by Eric Toussaint

For a decade, Ireland was heralded by the most ardent partisans of neo-liberal capitalism as a model to be imitated. The Celtic Tiger had a higher growth rate than the European average. Tax rate on companies had been reduced to 12.5% [1] and the rate actually paid by TNCs that had set up business there was between 3 and 4% - a CEO’s dream! Ireland’s budget deficit was nil in 2007, as was its unemployment rate in 2008. In this earthly paradise, everybody seemed to benefit. Workers had jobs (though often highly precarious), their families were busy consuming, benefiting as they were from the prevailing abundance, and both local and foreign capitalists were enjoying inordinate returns.

In October 2008, a couple of days before the Belgian government bailed out the big “Belgian” banks Fortis and Dexia with taxpayers’ money, Bruno Colmant, head of the Brussels stock exchange and professor of economics, published an op-ed in Le Soir, the French-language daily newspaper of record, stating that Belgium imperatively had to follow the Irish example and further deregulate its financial system. According to Colmant, Belgium needed to change the legal and institutional framework so as to become a platform for international capital, just like Ireland. A few short weeks later the Celtic Tiger was crying mercy.

In Ireland, financial deregulation had triggered a boom in loans to households (household indebtedness had reached 190% of GDP GDP
Gross Domestic Product
Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another.
on the eve of the crisis), particularly in real estate, a factor that helped boost the island’s economy (the building industry, financial activities, etc.). The banking sector had experienced exponential growth with the establishment of many foreign companies [2] and the increase in Irish banks’ assets. Real estate and stock market bubbles started forming. The total amount of stockmarket capitalizations, bond Bond A bond is a stake in a debt issued by a company or governmental body. The holder of the bond, the creditor, is entitled to interest and reimbursement of the principal. If the company is listed, the holder can also sell the bond on a stock-exchange. issues, and bank assets was fourteen times bigger than the country’s GDP.

What could not possibly happen in such a fairytale world then happened: in September-October 2008 the card castle collapsed and the real estate and financial bubbles burst. Companies closed down or left the country, unemployment rose from 0% in 2008 to 14% in early 2010. The number of families unable to repay their creditors swiftly increased too. The whole Irish banking system teetered on the edge of bankruptcy and a panic-stricken government blindly guaranteed bank deposits for EU480 billion (that is, about three times an Irish GDP of 168 billion). It nationalized the Allied Irish Bank, the main source of financing for real estate loans, with a transfusion of EU48.5 billion (about 30% of GDP).

Exports slowed down. State revenues declined. The budget deficit rose from 14% of GDP in 2009 to 32% in 2010 (more than half of this due to the massive support given to the banks: 46 billion in equity Equity The capital put into an enterprise by the shareholders. Not to be confused with ’hard capital’ or ’unsecured debt’. and 31 billion in purchases of toxic assets Toxic assets An asset that becomes illiquid when its secondary market disappears. Toxic assets cannot be sold, as they are often guaranteed to lose money. The term “toxic asset” was coined in the financial crisis of 2008/09, in regards to mortgage-backed securities, collateralized debt obligations and credit default swaps, all of which could not be sold after they exposed their holders to massive losses. ).

At the end of 2010 the European bail-out plan with IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.
participation amounted to EU85 billion in loans (including 22.5 billion from the IMF) and it is already clear that it will not be enough. In exchange, a radical cure was enforced upon the Celtic Tiger in the form of a drastic austerity plan that heavily affects households’ purchasing power, with a resultant decrease in consumption, in public expenditure on welfare, in civil servants’ salaries, in infrastructure investments (to facilitate debt repayment), and in tax revenues. On the social level, the principal measures of the austerity plan are nothing short of disastrous:

- suppression of 24,750 positions in the civil service (8% of the workforce, which would mean 350,000 positions in France);

- newly recruited employees will earn 10% less;

- reduction of social transfers resulting in lower family and unemployment allowances, a significant reduction in the health budget, a freeze on retirement pensions;

- a rise in taxes, to be borne mostly by the majority of the population, already a victim of the crisis: notably a VAT increase from 21% to 23% in 2014; creation of a real estate tax (affecting half of the households that were formerly tax-exempt);

- a EU1 reduction in the minimum hourly wage (from EU8.65 to 7.65, or 11% less).

The rates for loans to Ireland are very high: 5.7% for the IMF loan and 6.05% for “EU” loans. These loans will be used to repay banks and other financial bodies that buy bonds on the Irish debt, borrowing money from the European Central Bank Central Bank The establishment which in a given State is in charge of issuing bank notes and controlling the volume of currency and credit. In France, it is the Banque de France which assumes this role under the auspices of the European Central Bank (see ECB) while in the UK it is the Bank of England.

at a rate of 1% - another windfall for private financiers. According to AFP, IMF managing director Dominique Strauss-Kahn claimed that it would work, though of course “it would be difficult because it is hard for people who will have to make sacrifices for the sake of budget austerity”.

Both in the streets and in parliament, opposition has been very determined. The Dail, or lower house of parliament, voted the 85 billion rescue plan by a mere 81 to 75. Far from relinquishing its neo-liberal orientation, the IMF declared that among Ireland’s priorities it is counting on the adoption of reforms to do away with structural obstacles to business, so as to support competitiveness in the coming years. “Socialist” Dominique Strauss-Kahn said he was convinced that a new government after the elections in early 2011 would not change anything: “I’m confident that even if the opposition parties, Fine Gael and Labour, are criticizing the government and the programme [...], they understand the need to implement the programme.”

In short, the economic and financial liberalization aimed at attracting foreign investments and transnational financial companies has utterly failed. To add insult to the damage the population must bear as a result of such a policy, the IMF and the Irish government are persevering in the neo-liberal orientation of the past two decades and, under pressure from international finance, are subjecting the population to a structural adjustment Structural Adjustment Economic policies imposed by the IMF in exchange of new loans or the rescheduling of old loans.

Structural Adjustments policies were enforced in the early 1980 to qualify countries for new loans or for debt rescheduling by the IMF and the World Bank. The requested kind of adjustment aims at ensuring that the country can again service its external debt. Structural adjustment usually combines the following elements : devaluation of the national currency (in order to bring down the prices of exported goods and attract strong currencies), rise in interest rates (in order to attract international capital), reduction of public expenditure (’streamlining’ of public services staff, reduction of budgets devoted to education and the health sector, etc.), massive privatisations, reduction of public subsidies to some companies or products, freezing of salaries (to avoid inflation as a consequence of deflation). These SAPs have not only substantially contributed to higher and higher levels of indebtedness in the affected countries ; they have simultaneously led to higher prices (because of a high VAT rate and of the free market prices) and to a dramatic fall in the income of local populations (as a consequence of rising unemployment and of the dismantling of public services, among other factors).

programme similar to those imposed on Third World countries for the past three decades. Yet these decades should show what must not be done, and why it is high time to enforce a radically different logic that benefits people and not private money.

The present article is largely drawn from a slide show by Pascal Franchet (“Actualité de la dette publique au Nord”,

Translated by Christine Pagnoulle in collaboration with Judith Harris.


[1The tax rate on company profits is 39.5% in Japan, 39.2% in the UK, 34.4% in France and 28% in the US.

[2The problems experienced by the German Hypo Reale Estate (bailed out by Angela Merckel’s government in 2007) and the collapse of the US business bank Bear Sterns (bought over by JP Morgan with the help of the Bush administration in March 2008) were partly due to dodgy hedge funds located in Dublin.

Eric Toussaint

is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France.
He is the author of Debt System (Haymarket books, Chicago, 2019), Bankocracy (2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012 (see here), etc.
See his bibliography:
He co-authored World debt figures 2015 with Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria (2015); and with Damien Millet Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. He was the scientific coordinator of the Greek Truth Commission on Public Debt from April 2015 to November 2015.

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