The Global Financial Crisis, Case Study Of Ireland

THE GLOBAL FINANCIAL CRISIS, CASE STUDY OF IRELAND 1
THE GLOBAL FINANCIAL CRISIS, CASE STUDY OF IRELAND
Student Name
Institution Affiliation
Facilitator
Course
Date

THE GLOBAL FINANCIAL CRISIS, CASE STUDY OF IRELAND 2
Contents
1.0 Introduction................................................................................................................................3
2.0 GFC in Ireland...........................................................................................................................3
3.0 Impacts of GFC on the Ireland economy...................................................................................4
3.1 Housing market......................................................................................................................4
3.2 Economy deterioration...........................................................................................................5
3.3 Unemployment rates..............................................................................................................6
4.0 Policies in response to GFC.......................................................................................................8
5.0 Outcome of the Policies...........................................................................................................10
6.0 References................................................................................................................................12

THE GLOBAL FINANCIAL CRISIS, CASE STUDY OF IRELAND 3
1.0 Introduction
Throughout the history of economics, surprising events do occur that leave a wake of desolation
in their pathways. The recent financial crisis which took place between 2008 and 2011 has been
one of those events. Very few people perceived the potential negative consequences of what was
happening, and that didn't prevent them. No one could foresee the butterfly impact that would
supervene. As a result, very few nations could manage to escape being tarnished by this crisis
which was witnessed on almost all financial markets, and while many states have recovered to
their initial positions of global economy today, great care must be taken so that the situation may
not recur in future (Laeven &Valencia, 2012). Not surprisingly, the worst-hit nations were those
still struggling to remain above the water level, although, the bastions of financial world were
not left unshaken. This paper outlines how GFC affected Ireland, its impacts on the economy, the
policies which were implemented in response to this disaster and finally tables out the outcome
of those policies.
2.0 GFC in Ireland
The global financial crisis in Ireland resulted to deterioration of its economy and
ultimately becoming over dependent on property sector. The primary investment on the sector of
property relied on solid demand as well as supply fundamentals, like the increasing population,
resilient income growth rates and truncated unemployment levels (Lane, 2012, p.49). But, after
Irish economy recovered successfully in 2002, people underrated the risk of getting into property
market, until they realized it very late when the boom that swept United States and the world in
general caught up with Ireland. The country had been lucky to survive the housing bubble of late
1990, but the sector of banking, vitalized by global boom, crumpled its assets in a matter of few
years, loaning both Irish and the non-Irish (Santis, 2012). After the burst of the global bubble,

THE GLOBAL FINANCIAL CRISIS, CASE STUDY OF IRELAND 4
financial institutions were among the sectors which were hit severely by the crisis. The
government developed fear that the institutions which provides funds to its banks would pull out,
collapsing its banking sector. To counter such a misfortune, the government assured the senior
debts of the banks (Draghi, 2014).
3.0 Impacts of GFC on the Ireland economy
Right from the year 2004, property market in Ireland exhibited signs of asset value
bubble. A number of international analysts pinpointed the risks of Ireland's over dependence on
property and construction sectors. For instance, the IMF (2006) highlighted the increasingly
unbalanced growth in the economy of Ireland since 2002, which was characterized by “heavy
reliance on building investment, sharp increases in house prices, and rapid credit growth,
especially to property-related sectors”. Similarly, Economist's (2014) after their survey on
Ireland economy pointed out that the banking systems in Irish had been extremely exposed to
property sector and a mere crash would “badly hit the balance sheets of the two big Irish banks,
Allied Irish Bank (AIB) and Bank of Ireland”. However, these and several other warnings were
ignored by the regulator, policy makers and the banking institutions. In addition, Ireland's public
policies and monetary initiatives were also reflected in this ignorance (Karamessini &Rubery,
2013).
3.1 Housing market
The adjustments in the Ireland’s housing market began early 2007, when the interest rates
began to up surge while the economy started to be shaken by the sub-prime crisis shock. In 2008,
the property prices deteriorated nationally by almost 9.1% higher as compared to the 7.3% which
had been witnessed in the year before (Permanent ESRI, 2010). As recorded by the Friends First

THE GLOBAL FINANCIAL CRISIS, CASE STUDY OF IRELAND 5
(2008), the house prices registered a drop of 25% since the dawn of housing booming in 2006
and were expected to drop by a range of 20 to 30% in the preceding three years. However what it
turned to be was a clear indication of a danger ahead, with the reductions going close to 40-50%.
The construction sector contracted one month after the other since May 2007, resulting into a 40
% decline in house unit completion in 2008 .These house market adjustment impacts spread out
to other sectors of Ireland economy including the non-housing investments and consumption
sector. Further, the commercial building sector contracted in the year 2010 with a substantial
decline in both the output and capital value. Following such a decline in property value,
customers began to face the possibilities of adverse equity and financial institutions left with loan
statements which were severely exposed to the falling property markets (Laeven &Valencia,
2013,p.225). IFSRA failure to control these consequences can be linked with its laissez-faire
tactic to supervision. According to Irish Central Bank (2008), the rise in indebtedness and strong
credit growth had been identified as the major vulnerabilities in the system. This is principally
true when the final stages of property cycle are considered, when the loan records of Irish banks
augmented from 166 billion in the year 2004 to 275 billion by mid-2007. The major expansions
in crediting sector was financed through “disproportionately high” borrowing in ECB
(Goodbody, 2008; Morgan, 2008), as “banks leveraged their deposits with sizeable borrowings
from abroad” (Honohan, 2010).
3.2 Economy deterioration
The high deterioration rate in the economy of Ireland was well reflected in the financial
results of its main financial institutions. By May 2009, the Anglo Irish Bank had already incurred
a loss of more than 4.1 billion, which was the largest figure in the history of Irish corporate, and
anticipated for the loss to hit 7.5 million before the year could end. Before mid- 2008, AIB had

THE GLOBAL FINANCIAL CRISIS, CASE STUDY OF IRELAND 6
reported e1 billion as its pre-tax profit, which was a 60 % decline from what it had recorded in
the previous year. The Bank of Ireland by the end of the financial year on March 2009 recorded a
loss of 7 million compared to a 1.93 billion profit which it had recorded in 2008. In regard to
foreign players of the economy, the Bank of Scotland (Ireland) reported a “significant increase in
impairments” due to the declining value of the assets in 2008 which was described as
“unprecedented”. By February 2010, under the challenging market environments, the bank shut
one of its major retail arms, Halifax, causing a loss of more than 750 jobs. This increased the rate
of unemployment in the country generally
This disaster was amplified by poor risk management approaches of Irish financial sector
and the regulators failure to supervise the approaches effectively (Kattel &Raudla, 2013, p.426).
The condition was fueled by pro-cyclical financial and communal policy initiatives sanctioned
by the Government of Ireland at that moment and intensified by international monetary sub-
prime recession of 2008 (Beirne & Fratzscher, 2013, p.60). The deterioration observed in the
property markets of Ireland has been recorded as the main reason for capital structures of its
banking sector to erode with the prevalent global credit€‰crisis which has compounded
liquidity concerns. Due to that, the banking sector in Ireland completely lost confidence in global
markets and the general public.
3.3 Unemployment rates
In the year 2008, due to the global financial crisis which hit the country very hard, Ireland
underwent its first substantial rise in unemployment rates over the past few decades (Reinhart,
2012). Ireland’s unemployment rate grew to become the highest in European Union, registering

THE GLOBAL FINANCIAL CRISIS, CASE STUDY OF IRELAND 7
one of EU’s highest unemployment rates. Before the end of 2011, statistics indicated that over
25% of the country’s population which was economically active was unemployed, totaling to
about 5.7 million citizens. The long-term unemployment rates also registered a considerable
increase with over half of the unemployed citizens being categorized as long-term unemployed
before the end of 2012, as compared to the 21.1% in 2008. Additionally, the total number of
households hit by unemployment increased to 1.7 million before the end of the year 2012. This
increased the number of citizens who were at the risk of social exclusion.
Ireland, which is slowly getting out of the adverse economic crisis which affected its
population after the global financial crisis, the effects of the misfortune are still felt by the
population due to the poverty rates which are still high. This, in turn, has been influencing the
living standards of the population because of its direct connection to the decrease in income
levels and the increase in consumption expenditure, as well as the quality of life.
The impacts of this financial crisis on the Irish financial institutions were significant. To
begin with, the borrowing cost on the banking sector increased substantially. Secondly, financial
institutions experienced high levels of default (like bad debts) (Blanchard, Romer, Spence &
Stiglitz, 2012). Several financial institutions in Irish as well as building societies crumpled and
others were taken by the government (like Irish Nationwide, Bank of Ireland, AIB, EBS, Irish
Life and Anglo Irish Bank). The result of this misfortune was that most of Irish financial
institutions lost their capacity to govern their default levels as the responsibility was shifted to
external autonomous audits on behalf of the regulators. Subsequently, Irish banks began to
scuffle to enhance their sustainability and faced difficulties in income generation (Moschella,
2011).

THE GLOBAL FINANCIAL CRISIS, CASE STUDY OF IRELAND 8
4.0 Policies in response to GFC
Policy actions which were taken in Ireland to respond to the 2007-2009 crises can be
grouped into three categories: promotion of market stability, advancement of the structural repair
and lastly improving macroeconomic environments (Floyd & Skinner, 2015, p.299). However,
considering the link between real economy and financial sector, it is important to first consider
the policies which have been put in place to improve macroeconomic environments after this
crisis.
Beginning in the late spring of 2007, the fiscal specialists by and large acted rapidly to
embrace measures reacting to the request by budgetary organizations for expanded access to
central bank liquidity (Arieff, 2010). Central banks lost the terms of access to rebate windows
and utilized an assortment of comparative components. Those activities were sensibly all around
facilitated. Coordination between the central banks was fortified in December 2007 with the
foundation of Bank of Ireland swap offices that, over the accompanying 10 months, were
extended in an estimate and in interest, however that development raised different issues
(Dukelow, 2011, p.408).
For some nations simply like Ireland, the utilization of regular money related approach
and financing cost diminishments came later. Once in a while, fiscal approach activities were
facilitated; however, this was basically just amid the second year of the crisis (Claessens &Kose,
2013). As a major aspect of the control period of the crisis, a couple of financial institutions have
grasped alleged eccentric money related arrangements as for what they purchase, on what terms,
and whether they stress over the outcomes for the risk sides of their accounting reports.

THE GLOBAL FINANCIAL CRISIS, CASE STUDY OF IRELAND 9
It was not until the second year of the crisis, beginning in late 2008, that optional
financial arrangements came to be broadly utilized by those nations with a degree to do as such.
It is hard to reason that financial arrangement activities have been facilitated, however, they are
altogether pointed a similar way (Henisz, 2011, p.298).
A moment classification of approach measures has been to advance monetary market
solidness all the more specific. These measures frequently mix into fiscal arrangement activities,
and they add to auxiliary repair and in addition to showcase dependability (Didier, Hevia &
Schmukler, 2012, p.2052). Nonetheless, these kind of measures are unmistakable in that they are
coordinated basically at real or saw advertise disappointments as opposed to at foundations,
exclusively or all together. For the most part, these measures utilize the central bank's monetary
record, at first obliged by its loan fee target and all the more as of late unconstrained. The wide
goal is to give liquidity to particular markets, for instance, the business paper market, and along
these lines to reestablish their working as providers of credit (Rajmil et al, 2014, p.6528). One
measure of this compose does not include central banks in expanding the scope of store
protection, which in actuality is intended to balance out the market for bank stores and
additionally to balance out store taking organizations.
Ireland has gone further toward this path like most different nations. I speculate that there
are two explanations behind this. To begin with, nonbank monetary foundations make up a
bigger piece of the general money related framework in Ireland than in some different nations. In
this way, guide showcase related measures are believed to be important to reestablish the stream
of credit. Second, the Bank of Ireland helpfully has the ability to act under “abnormal and urgent
conditions” to utilize its asset report to encourage this sort of activity (Matsaganis, 2012, p.406).

THE GLOBAL FINANCIAL CRISIS, CASE STUDY OF IRELAND 10
Accordingly, it was less demanding inside Ireland political framework to go to the central bank,
where the cash is that in some different nations.
The third classification of arrangement measures has been gone for progressing auxiliary
repair. They are the most disputable and various. No less than five sorts of activity with dynamic
levels of interruption in the tasks of money related foundations have been utilized. To start with
are assurances of the liabilities (other than stores) of specific sorts of budgetary organizations,
for the most part, banks yet, for instance in the United States, currency showcase common
subsidizes also. The utilization of this sort of activity has been across the board (Matsaganis,
2012, p.406).
Second is a capital infusion. They have been utilized in numerous nations, however with
various conditions appended relying upon the ward and the conditions of the foundations. Third
are projects to manage heritage, or lethal, resources by moving those advantages off the
monetary records of foundations or by segregating them on asset reports. The fourth sort of
activity is the takeover of a money-related organization (or of a gathering of establishments)
either by law or through a procedure that does not include formal nationalization but rather sums
to considerable administrative control (Rajmil et al, 2014, p.6528). At last organizations have
been constrained into mergers or into liquidation. These two occasions contrast in numerous
regards however they have a typical basic trademark: The establishment vanishes.
5.0 Outcome of the Policies
Out of the implementation of the above outlined policies, the banking sector of Ireland
has almost recovered fully from the crisis of 2008-2011, as per the report from the ratings agency

THE GLOBAL FINANCIAL CRISIS, CASE STUDY OF IRELAND 11
S&P in charge of underscoring the country’s recuperate from the devastating recession of 2008-
2011. In one of the reports entitled “Getting back to where they once belonged”, S&P has
reported that the sector to have “largely recovered” from the “unembellished ruptures” which
had been experienced during this period of crisis, with regaining in the broader economy the
main driver being the improvement in creditworthiness (Matsaganis, 2012, p.406). The economy
of Ireland was among the hardest-hit economies in Europe during this period of financial crisis,
forcing the government to nationalize some of the financial institutions like the Allied Irish
Banks, the Rescue Bank of Ireland and the Permanent TSB. However, this economy has
recovered strongly after receiving the EU-IMF salvage package of 2010 to becoming the fastest-
expanding economy across the Europe countries.
The “bad bank” which had been established at the dawn of property crash has currently
reported a 95% recoup of the total amount it had spent to bail out banks and is on the track of
making its profit as it used to do (Economou et al, 2013, p.308). On the other hand, AIB is
almost returning to the stock market. The S&P has said that, considering all the exceptional
items in relation to deleveraging costs, the six Irish banks are registering their profits as they
used to before being hit by the crisis, S&P rating agency has now moved its anchor from its
starting point for ranking typical Irish banks to investment grades. However, still the sector has
“a long way to go to match the creditworthiness of most of the Western European banking
systems”, as per the reports of S&P. which has also pointed out the risks including associated
with the country’s relatively large stocks of non-performing credits and the other warning which
is gaining popularity in the economy of Ireland, the potential impacts of Brexit.

THE GLOBAL FINANCIAL CRISIS, CASE STUDY OF IRELAND 12
6.0 References
Arieff, A., 2010. Global Economic Crisis: Impact on Sub-Saharan Africa and Global Policy
Responses. DIANE Publishing.
Beirne, J. and Fratzscher, M., 2013. The pricing of sovereign risk and contagion during the
European sovereign debt crisis. Journal of International Money and Finance, 34, pp.60-
82
Blanchard, O., Romer, D., Spence, M. and Stiglitz, J.E., 2012. In the wake of the crisis: Leading
economists reassess economic policy. MIT Press.
Claessens, S. and Kose, M.M.A., 2013. Financial crises explanations, types, and
implications (No. 13-28). International Monetary Fund.
Dukelow, F., 2011. Economic crisis and welfare retrenchment: Comparing Irish policy responses
in the 1970s and 1980s with the present. Social Policy & Administration, 45(4), pp.408-
429.
De Santis, R., 2012. The Euro area sovereign debt crisis: safe haven, credit rating agencies and
the spread of the fever from Greece, Ireland and Portugal.
Draghi, M., 2014, August. Unemployment in the euro area. In Speech at the Annual Jackson
Hole Central Bank Symposium, August (Vol. 22).

THE GLOBAL FINANCIAL CRISIS, CASE STUDY OF IRELAND 13
Didier, T., Hevia, C. and Schmukler, S.L., 2012. How resilient and countercyclical were
emerging economies during the global financial crisis?. Journal of International Money
and Finance, 31(8), pp.2052-2077.
Economou, M., Madianos, M., Peppou, L.E., Patelakis, A. and Stefanis, C.N., 2013. Major
depression in the era of economic crisis: a replication of a cross-sectional study across
Greece. Journal of affective disorders, 145(3), pp.308-314.
Floyd, E., Li, N. and Skinner, D.J., 2015. Payout policy through the financial crisis: The growth
of repurchases and the resilience of dividends. Journal of Financial Economics, 118(2),
pp.299-316.
Henisz, W.J., 2011. Leveraging the financial crisis to fulfill the promise of progressive
management. Academy of Management Learning & Education, 10(2), pp.298-321.
Kattel, R. and Raudla, R., 2013. The Baltic Republics and the crisis of 2008–2011. Europe-Asia
Studies, 65(3), pp.426-449.
Karamessini, M. and Rubery, J. eds., 2013. Women and austerity: The economic crisis and the
future for gender equality (Vol. 11). Routledge.
Laeven, L. and Valencia, F., 2012. Systemic banking crises database: An update.
Lane, P.R., 2012. The European sovereign debt crisis. Journal of Economic Perspectives, 26(3),
pp.49-68.

THE GLOBAL FINANCIAL CRISIS, CASE STUDY OF IRELAND 14
Laeven, L. and Valencia, F., 2013. Systemic banking crises database. IMF Economic
Review, 61(2), pp.225-270.
Matsaganis, M., 2012. Social policy in hard times: The case of Greece. Critical Social
Policy, 32(3), pp.406-421.
Moschella, M., 2011. Lagged learning and the response to equilibrium shock: the global
financial crisis and IMF surveillance. Journal of Public Policy, 31(2), pp.121-141.
Reinhart, C.M., 2012. The return of financial repression.
Rajmil, L., de Sanmamed, M.J.F., Choonara, I., Faresjö, T., Hjern, A., Kozyrskyj, A.L., Lucas,
P.J., Raat, H., Séguin, L., Spencer, N. and Taylor-Robinson, D., 2014. Impact of the 2008
economic and financial crisis on child health: a systematic review. International journal
of environmental research and public health, 11(6), pp.6528-6546.