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The Global Financial Crisis, Case Study Of Ireland

   

Added on  2021-05-31

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FinancePolitical Science
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THE GLOBAL FINANCIAL CRISIS, CASE STUDY OF IRELAND 1THE GLOBAL FINANCIAL CRISIS, CASE STUDY OF IRELANDStudent NameInstitution AffiliationFacilitatorCourseDate
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THE GLOBAL FINANCIAL CRISIS, CASE STUDY OF IRELAND 2Contents1.0 Introduction................................................................................................................................32.0 GFC in Ireland...........................................................................................................................33.0 Impacts of GFC on the Ireland economy...................................................................................43.1 Housing market......................................................................................................................43.2 Economy deterioration...........................................................................................................53.3 Unemployment rates..............................................................................................................64.0 Policies in response to GFC.......................................................................................................85.0 Outcome of the Policies...........................................................................................................106.0 References................................................................................................................................12
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THE GLOBAL FINANCIAL CRISIS, CASE STUDY OF IRELAND 31.0 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, thepolicies which were implemented in response to this disaster and finally tables out the outcome of those policies.2.0 GFC in IrelandThe 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 propertymarket, 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,
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THE GLOBAL FINANCIAL CRISIS, CASE STUDY OF IRELAND 4financial 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 ratesbegan 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% whichhad been witnessed in the year before (Permanent ESRI, 2010). As recorded by the Friends First
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