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Global downturn is Ireland's economic collapse
 In the wake of a spectacular housing and credit collapse that required an expensive bailout, Ireland faces a 2010 budget deficit that amounts to a whopping 32 percent of gross domestic product. With growth faltering - Ireland's central bank this week said it expects the island nation's economy to grow just 0.2 percent in 2010 -- the ratings agency Fitch on Wednesday downgraded Ireland's already-troubled credit rating.

 

From extreme poverty, rags to Riches to Excess and back again:
In order to understand how Ireland ended up where it is today one has to review Irish history to put it into context.

Starting in the 1990s, Ireland enjoyed a genuine boom, driven by exports and foreign direct investment. Multinational corporations like Intel, Microsoft, and Citigroup set up shop in the country, drawn by its skilled, English-speaking workforce and proximity to European markets. But this decade, after Ireland entered the European monetary union, the Celtic Tiger "veered off into excess and speculative investment and borrowing," Lynch says.

Irish banks, suddenly able to tap into a global pool of capital, took out huge sums of short-term loans from international markets and lent with abandon into the local market.

The result, Lynch says, "was a housing bubble two or even three times as great as that in the United States." Research from the San Francisco Fed found that in the global housing and debt boom, Ireland enjoyed the greatest housing price appreciation (up 172 percent between 1997 and 2006). In 2007, the ratio of debt to disposable income was 191 percent in Ireland, compared with about 130 percent in the U.S.

Then came a housing and lending bust that would be familiar to residents of Las Vegas. "Ireland remains a thinly populated island," Lynch notes. "And yet you'll see these brand new suburban-style housing developments out in the middle of nowhere.

The future for development and recovery remains uncertain as the risks remain due to massive government debts as a result of banking wildcat high risk investment encouraged by poor legislation developed over the past 30 to 40 years to encourage development. The burden of this neglect will be carried unfairly by the young people of Ireland who bear no responsibility for the Irish banks gambling addiction.

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