International Banking Law

Ireland Economic and Financial System and Credit Crunch of 2008-2009

Introduction

In this paper, we take austerity to mean a situation in which economic and social conditions are unfavourable and living standards fall, possibly but not necessarily due to government policies. It can be argued that Ireland experienced considerable austerity throughout the first four decades after independence. A whole range of factors accounted for this. For many years, the country was heavily reliant on a small and underdeveloped farm economy. It was adversely affected by the Great Depression of the 1930s and the widespread protectionist policies pursued. It similarly suffered the effects of an 'Economic War' with Britain from the mid-1930s and later the Second World War. The protectionist policies adopted by Ireland itself did little to develop the economy. Modest job creation in industry and services failed to counteract the significant losses from agriculture. Unemployment and emigration were the norm. A significant 'regional problem' was obvious, particularly in the west and north-west of the country.

From the late 1940s, new initiatives were being taken including the establishment of the Industrial Development Authority and an export agency, An Córas Tráchtála. One measure, quite innovative at the time and introduced in 1956, was the Export Profits Tax Relief Scheme, where exporting manufacturing firms paid no tax on profits from exports. This was especially attractive to foreign firms with an export orientation. As a result, a range of British firms serving British and other markets located branch plants in Ireland. They were to be joined by considerable number of firms from the USA, West Germany, Japan and elsewhere in the years ahead. The government published a White paper, Economic Development, in 1958 and based on this, the First Programme for Economic Expansion in 1961 placed a major emphasis on ways of increasing exports. In addition to this, however, policies which formerly discouraged foreign firms from locating in Ireland were abandoned. In a short space of time, therefore, Ireland moved from being largely inward looking and protectionist to being outward looking and export oriented. This approach was to continue with enthusiasm under successive governments, with Ireland joining a range of international organizations such as the International Monetary Fund (IMF) and the World Bank in the late 1950s, signing an Anglo-Irish Free Trade Agreement in 1965 and, with the UK and Denmark, joining the European Economic Community, now the European Union, with overwhelming public support in 1973. Membership of the European Union gave Ireland a major new market for agricultural products. Guaranteed prices under the Common Agricultural Policy yielded substantial net receipts to agriculture and receipts from the European Regional Development Fund and the European Social Fund were invested in infrastructure, education and training (Drudy, 1998).

During this period, manufacturing was restructured and production shifted from a dominant largely indigenous low-technology group of traditional industries that had strong links to the domestic and UK market, to the dominance of a group of 'high-technology' industries concentrating on electronics and pharmaceuticals. This group was largely foreign owned and export ...