Financial Crisis in Ireland: Analysis, Evolution, and Lessons Learned

This report provides a comprehensive analysis of Ireland's financial crisis, examining its causes, including banking scandals, easy credit policies, and the impact of the global recession of 2008. It details the evolution of the crisis, the role of the European Union, and the implementation of the bailout program. The report explores various steps taken by the Irish government to recover, such as controlling the banking system, fiscal sovereignty, and loan programs. It also discusses the application of corporate finance theories, like those of Jean Tirole, and the importance of effective oral communication in managing the crisis. Furthermore, the report compares Ireland's experience with other countries like Portugal, Spain, and Greece, highlighting Ireland's successful evolution from the crisis and its emergence as a paradigm for other nations facing financial difficulties. The analysis covers policy approaches, interdependence, fiscal policies, and public finance management, offering valuable insights into the strategies that contributed to Ireland's recovery.

Evolving From Financial
Crisis

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Financial crises is a concept that includes issues which are faced by a country or
organisation related to finance and monetary aspects. In this project report, financial crises of
Ireland are discussed along with its evolution. Evolution is a process in which a country
overcomes from the crises. Various countries are compared with Ireland on bases of issues faced
by them in order to discuss success and failures of these countries. Corporate finance theories
and oral communication is also mentioned in this report which are applied in practical situations
(Beirne and Fratzscher, 2013).
MAIN BODY
Ireland is an island in Europe and is a part of European Union. In the year of 2008,
financial crises hit down Irish economy which took a drastic turn towards nationwide recession.
Financial crises of Ireland which is referred as Irish Financial Crises is considered as biggest
economic crises in Europe of all the times. This crisis was followed by series of banking
scandals and slow economic growth. Problems which occurred from this event are countless, but
few most important can be named as unemployment, breakdown of Irish Stock Exchange, bank
scandals, emigration and recession. These issues do not hit Ireland overnight but was a result of
series of events took place over the time.. Financial environment of Ireland was way flexible due
to which they suffered financial crises. Economic environment of Ireland can be classified into
two categories, that is micro and macro. Micro financial environment of Ireland is widely
affected by industrialisation and innovations in business organisations of the countries. Macro
financial environment of this nation is affected by macro factors such as political, economic,
social, technological, legal and environmental.
The major factor behind this problem was finance cycle of banks and banking scandals.
In order to adopt the cheap credit strategies of United states, the economy of Ireland had
developed an easy money real estate bubble in which banks provided easy loans to buy and build
houses. But after recession hit this economy, home prices collapsed and people failed to pay
back their loans and these imperilling debt holdings results in money deficit in whole of the
economy. Another reason for this drastic recession was higher rates of British Banks which lends
money to Irish government. The period of 2008-2011 does not only affected Ireland but it
became an international problem. Ireland is a part of European union and borrowed funds from
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various British banks and the problem occurred when they were no longer able to repay their
loans. Other countries involved in European Union were worried about that crises in Ireland as
this can affect the power and value of currency and can depress financial market even further.
Economy of Europe is a global influencer and it can affect global economy.
Economy of Ireland was facing recession in the period of 2008-2011. In order to deal
with this financial crises, government of this economy decided to take help of Europe Union and
introduce a programme which can help them in evolving from financial crises. Economic
adjustment programme for Ireland was proposed in 2010 which was referred as The Bailout
Programme. Proposal of this programme was signed by the Irish government and European
commission on 16 December 2010. This programme was centralised towards three years
financial aid programme which was imposed on the Irish society in order to reduce government
expenditure. Under this programme, Ireland received total amount of 85 billion euros from
external support which has few authorities such as European financial stabilisation mechanism,
European financial stability facility, Irish treasury and the national pension reserve fund and
from international monetary funds (Dembiermont, 2013). This programme has some steps which
helped Ireland to evolve from financial crises like Controlling banking system, After adopting
this programme government of this nation decided to control banking sector of Ireland.
According to the policies adopted in this bailout programme, government and regulatory
authorities had all rights to interfere in banking operations of banks and other financial
institution. Adopting banking functions of United states is considered as the major cause of
financial crises in Ireland. There is no doubt that US has earned millions of profit from these
strategies but economic conditions of the nations are way different due to which Ireland tucked
into the bubble of low interest rate loans against real estate. In order to resolve this major issue,
there are some policies and strategies which are developed and imposed on banking
organisations of the nation. These policies include fixed rate of interest and other rates which can
affect liquidity and debt position of an organisation.
Another step which has taken by this country is fiscal sovereignty, The economic
adjustment programme which was implemented by government of Ireland and European union
was focused on Troika's bailout. Troika is a designation which represents the European Union in
its foreign relations. It is considered as a decision group formed by the European Commission,
European central bank and International monetary fund. In this programme of economic
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adjustment, government of Ireland decided to bailout from Troika. Fiscal sovereignty is a power
of a state to manage its revenue without the intervention of any other authorities such as states
and international financial institutions. In order to improve financial conditions in the nation,
Irish government decided to transfer their fiscal sovereignty to Troika (Donovan, 2013).
According to this step, government of Ireland will not be able to fully control and manage the
affairs of nation's revenue, there will be significant intervention of Troika.
Loan is a another step taken by this nation, under this program of Troika Bailout Ireland
received financial assistance and support from various authorities mentioned above. This
assistance was provided as a loan which is needed to be repaid of 85 billion euros so that the
government of this economy can cover their banking losses. The amount of loan was received by
this nation and various authorities including national and international contributed in this
country. The main aim of this contribution was to cover all the banking losses due to which
backbone of this nation was weakened.
The above steps helped Ireland to evolve from their financial crises. By the end of the
year 2012, this nation has emerged from bailout programme. In next few years Ireland produced
various bonds to wave off their loans (Lane, 2012).
Evolution from financial crises of Ireland is considered as the most significant adjustment
programme due to which they are considered as Celtic Tiger. The evolution of Ireland is a
paradigm for various countries which are trying to escape from monetary problems prevailing in
their countries. Portugal, Spain, Italy and Greece are some of the nations for which Ireland
became a benchmark. In order to justify the above statements, there are numerous reasons which
reflects that why Ireland is an inspiration for other countries. These reasons includes Consistent
policy approach in which Ireland nation is a part of European Union which has adopted
consistent policy approach which is a combination of macroeconomic, distributional and
structural policies. In the period when Ireland was facing Financial crises, instead of adopting
any other country's policy they decided to develop their own policy and follow them
consistently. Greece which is also a state of European Union, has faced various issues about
policy and strategies implementation at the time of their financial crises.
Another reason is Bailout programme, Ireland is a nation which is considered as a
paradigm for most nations. The reason behind this statement is their bailout programme which
they adopted after two years of financial crises. Under this programme, Ireland seek help from
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European Union and Troika in order to transfer their Fiscal sovereignty. Portugal is a European
nation which should get inspire from Ireland. The root cause of financial crises of Portugal was
excessive external deficits due to which they face various problems regarding depression and
recession. Ireland is a paradigm for countries like Portugal as they implement programmes like
bailout in such a way that the pressure of crises distributes in various segments and thus in only
three years, Ireland made it possible to overcome with that crises (Lane, 2013).
Interdependence is a concept which was chosen by Ireland at the time of financial crises.
According to this concept, Ireland seek help from other countries and union of Europe.
Interdependence is a process in which problems are shared between countries and a nation can be
dependent on other nations for help. Ireland received loan amounting billions in order to pass
with the crises. The above mentioned financial crises of Greece and Portugal could get assistance
of finance from their native countries if they adapt the concept of interdependence.
Fiscal policy are the collection of few policies and strategies which are developed by
government to collect revenue from government in thaw way of taxation. When financial crises
hit Ireland, government of this nation reconsiders their fiscal policies and made significant
changes in this policies. By changing the fiscal policy, it allowed government to receive more
revenue. The significant changes made in fiscal policy by Ireland is a paradigm for all the
countries which has faced financial crises as they can also adopt various changes in policies (Lin,
2012).
Public finance management is also a reason of why Ireland is considered as a paradigm.
Ireland financial crises was for five years and that is 2008-2011. After following bailout strategy,
Ireland issues ten year bonds in the year of 2013 in order to pay back their loan amount. This
approach of issuing bonds in public result in a great success as in only one year government of
Ireland has repaid a part of their loan. Spain and Italy are two nations of European union that
consider Ireland as a paradigm as these countries also received help from their native countries
as loan but failed to repay them. Ireland adapted strategy of public finance management in order
to reduce their expenditures.
The above mentioned steps taken by Ireland is the result of their evolution from financial
crises due to which they are considered as a paradigm for all the countries which has faced
financial crises such as Spain, Greece, Portugal and Italy (Martin, 2011).
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Theories of corporate finance plays a significant role while tackling the financial crises.
Few theories of financial crises along with its evaluation is discussed below:
Theories of corporate finance
Jean Tirole, who is the winner of 2014 Nobel prize in economics gave the theory of
finance with authoritative text for years. This theory mainly associated with management and
control of financial resources and the elements related to financial management. A set of
predictions and assumptions subject to financial management and control are considered in this
theory. Overall objective of this financial theory is to sustain the interest of finance managers
and management committee to assist the organisational structure for better financial growth and
development. This theory not only assist the financial management and management committee
but also helps the logical structure of decision making for better evaluation and control.
Moreover, it is associated with determining the financial requirement for assessing the future
task and projects (Obstfeld, 2012).
The analysis of the architectural dimension of the theories which are observed for better
evaluation and control are also considered to absorb financial challenges. The appropriate
portion of loans, debts and current liabilities are the main elements considered in various
corporate finance theories.
Effective oral communication is also plays an important role in tackling financial crises.
In order to seek help from other countries it is important for them to develop an professional
communication plan. Listening and feedback are two major aspects of effective communication
(Sirkeci, 2012).
Iceland and Ireland both are the country that have had failure and success overcoming their
financial crisis systematically.
Ireland is on the roadworthy to a strong improvement from its bank crisis but they faces
challenges leading amid weak growth and development in Europe, as per the participants at a
meeting in Dublin. A conference or meeting in Dublin brought collectively Irish government
representatives, academics, European officials, journalists and academics to discuss instruction
from Ireland's recovery and improving from the sovereign-bank loop. The program was
developed by the central government of this country, international monetary fund and centre for
economic policy research. The conference recognized that strong improvement was underway,
advantages from the amazing banking and financial reforms applied by the Irish government as
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well as way broader European activity to get over the euro crisis in an effective and systematic
manner. The essential role which is play by the Irish government’ powerful ownership and
execution capability was acknowledged, while prodding caution to stay on a way of reforms and
integration to secure abiding recovery. Ireland is success to overcome their financial crisis
systematically and effectively.
Debt sustainability is not secured in the euro country, provided that minimum growth,
slows debt diminution and negative impact may reoccur. In different countries, it is thoughtful
that the quick speed of fiscal integration had verified self-defeating. While estimation for Ireland
stay under argument. Beside this, Ireland’s adherence or support to all financial targets was
significant and needed large sacrifices.
In Iceland, Spain, Portugal and Greek they also faced financial crisis due to excess of
external depict. The cost of insuring and Portuguese, Irish and Greek debt all fell importantly in
the end couple of hours. The Greek debt situation is the dangerous or inaccurate measure of
sovereign debt Greece payable the EU between 2008 and 2018 (Greek Debt Crisis Explained,
2018). In year 2010, Greece said it might absence on its liability, forbidding the viability and
growth of the eurozone itself. In order to overcome failure, the European Union loaned Greece
sufficient to making payments on continue basis. Since February 2015, the different private
investors and European government have borrow Greece approx 294.7 billion euros. Therefore,
It was the large fiscal save of a bankrupt nation in history. Greece or Balkan country has only
cashed approx 41.6 billion euros. It has regular debt payments done 2059.
In return for the debt, the European Union needed Greece to follow self-discipline
measures. These improves were supposed to strengthen or justify the Greek authorities and fiscal
framework. They did that, but they also involved Balkan country in a financial condition that did
not end until 2017 (Wójcik, 2013).
Spain and Greece developed various strategies which were similar to Ireland but failed to
take advantage from them as nature financial crises of these countries were different. Spain and
Greece faced crises due to housing bubble and main reason behind Ireland crises was banking
system break down due to which policies such as fiscal sovereignty does nit resulted beneficial
for Spain. Another country which considered Ireland as a paradigm and used their policies and
techniques of evolution is Iceland. Unlike Greece and Spain, Iceland has attained success from
financial crises evolution. The reason behind their success is the nature of financial crises of
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Ireland and Iceland are same. Both countries faced financial crises due to banking system break
down. Strategies used by Iceland were loan and fiscal sovereignty in which they seek help from
their native countries and attained success in repaying those loans.
CONCLUSION
From the above project report, it can be concluded that Ireland is considered as the best
nation in the way it has evolved from financial crises. By analysing various reasons of this
nation's success, it can be said that Ireland has set a benchmark for other countries. Nations like
Iceland, Spain and Italy are compared with this country in order to identify success and failures.
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REFERENCES
Books and Journals:
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.
Dembiermont, C., Drehmann, M. and Muksakunratana, S., 2013. How much does the private
sector really borrow? A new database for total credit to the private non-financial sector.
Donovan, D. and Murphy, A.E., 2013. The fall of the Celtic tiger: Ireland and the euro debt
crisis. Oxford University Press.
Lane, P. R., 2012. The European sovereign debt crisis. Journal of Economic Perspectives. 26(3).
pp.49-68.
Lane, P.R., 2013. Financial globalisation and the crisis. Open Economies Review. 24(3). pp.555-
580.
Lin, J. Y. and Treichel, V., 2012. The crisis in the Euro zone: did the euro contribute to the
evolution of the crisis?. The World Bank.
Martin, R., 2011. The local geographies of the financial crisis: from the housing bubble to
economic recession and beyond. Journal of Economic Geography. 11(4). pp.587-618.
Obstfeld, M., 2012. Financial flows, financial crises, and global imbalances. Journal of
International Money and Finance. 31(3). pp.469-480.
Sirkeci, I., Cohen, J. H. and Ratha, D. eds., 2012. Migration and remittances during the global
financial crisis and beyond. The World Bank.
Wójcik, D., 2013. The dark side of NY–LON: Financial centres and the global financial crisis.
Urban Studies. 50(13). pp.2736-2752.
Online
Greek Debt Crisis Explained. 2018. [Online] Available
through<https://www.thebalance.com/what-is-the-greece-debt-crisis-3305525>.
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