According to a sign in my office, it’s exactly 4,381 miles from Dallas, Texas, to Limerick, Ireland.
That sign, a replica of an Irish road sign, was given to me by a colleague, Mark Wynne, who took my place in a forthcoming speaking assignment in Ireland when I retired from the Dallas Fed in November 2004. Limerick was between the airport and the Irish venue, and I had looked forward to stopping there, musing with my muse, and getting a picture of the city limit sign. Mark, an Irish born economist, had the sign made for me.
I had visited Ireland previously in the go-go years of the 1990s when its booming economy had earned it the title of Celtic Tiger. Ireland was enjoying the benefits of lower tax rates than its European partners. Instead of copying Ireland’s success with lower tax rates, they tried to get Ireland to raise its rates to ease the competition.
A gratifying aspect of the Irish boom was that it was slowing emigration and even attracting many former emigrates back home. Beginning with the potato famine, which probably accounts for my presence in this country, Ireland had consistently lost population. Happily, the Irish population was growing again and optimism was in the air. Good economic policies were working.
The last time Mark and I had visited Ireland was on the eve of the adoption of the new European Central Bank and the common currency, the Euro. Our conversation with the Governor of the Irish central bank focused on how a common monetary policy for Europe at that time would probably be to easy for the booming Irish economy. Nevertheless, he was a good sport about turning over his monetary policy to the ECB. (We had earlier visited with Bundesbank officials as well as those of the New ECB. I wasn’t sure about going from Buba, to a shiny high rise, but that’s another story.)
Having left the Fed six years ago this month, I had lost track of the goings on in Ireland, so I tracked down my friend by email and asked him what happened to Ireland. He gave me permission to reprint his quick informal e-mail reply, which follows.
“That is a great question. I think a combination of hubris, incompetence, corruption and too much believing their own PR. One might usefully distinguish between the “Celtic Tiger” boom years of the 1990s when growth was driven by a rebound from the great depression that Ireland suffered in the 1980s and other strong fundamentals (such as the low corporate income tax rate), and the “bubble” years of the 2000s when growth was driven by a huge property bubble, and construction became one of the main drivers of growth (as the Prime Minister at the time observed “the boom was getting boomier”). This was partly fueled by the low interest rate policies of the ECB. The government became more dependent on tax revenues tied to property, so when the property market collapsed they found themselves in a deep fiscal hole. The banks engaged in an orgy f property related lending that should have been nipped in the bud by regulators but was not, probably in part due to the tight political ties between property developers and leading politicians. So when the property market began to implode, the government and the banks found themselves in deep water. The government’s problems were then compounded by the perceived need to bail out the banking system, leaving them in an even deeper fiscal hole. Now we have the IMF/EU coming to the rescue, in part to prevent contagion to other euro area countries. I think it is really interesting to see the difference in the attitudes of the Irish and the Greeks to having to go to outsiders for help. As best I can tell, the Greeks are happy to take money from anyone who will give it to them, while for the Irish it is regarded as the greatest humiliation of the state since its founding in 1922.”