While the economic storm of the last two years has left virtually no nation untouched, few countries have felt its wrath like Ireland. Once dubbed the "Celtic Tiger" for its transformation from a laggard to a growth powerhouse, Ireland is now suffering from a stunning reversal of fortune.
From 2008 to the end of this year, the Irish economy is expected to contract 11.6%, according to the International Monetary Fund (IMF). "Ireland is a disaster," says Desmond Lachman, a resident fellow at the American Enterprise Institute for Public Policy Research (AEI), a Washington, D.C.-based think tank. "To call this a recession [in Ireland] is a gross understatement. It is halfway between a recession and a depression."
The bust, and the electrifying boom that preceded it, were caused by a confluence of factors. One contributor: Ireland's entry into the euro zone in 1999. Low interest rates set by the European Central Bank (ECB) fueled a real estate bonanza in the country, which the Irish government was all too happy to sustain. "The government wanted the residential and commercial boom in property to continue because it was so important to employment and consumption and other economic indicators," notes Mary O'Sullivan, a management professor at Wharton. "At some point, the government got locked into the cycle and attacked anyone who worried that [the boom] was unsustainable." When the real estate market overheated and collapsed, it brought the Irish economy down with it.
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Author: Knowledge@Wharton
