Review: When the Luck of the Irish Ran Out

I read this book on the flight from the U.S. to Shannon, Ireland (en route to Kuwait). In its 219 pages (not counting endnotes), author David J. Lynch manages to chart Ireland's key cultural, political, social, and economic events that led up to its financial crisis.

The first three quarters of the book focus on the lives of banker Sean Fitzpatrick, eventual head Anglo-Irish Bank; Roderick Doyle, a teacher cum famous writer; Bertie Ahern, the taoiseach (prime minister); IT businessman Jim O'Hara; and expatriate attorney Linda Farren.

For decades after independence in the 1920s, Ireland endured poverty in a nearly theocratic environment. In the 1980s, however, several factors came together that pushed society in new directions.

First, Catholic influence waned because of scandals. This helped loosen the dominant conservative, nationalist, rural influence on the nation, and (with help from Doyle's literary skills) opened debate on controversial issues such as divorce, teen pregnancy, and domestic violence. Culturally, rock group U2 and the Riverdance troupe made it cool to be Irish, which helped boost confidence.

Economically, the government made a concerted effort to attract foreign (mostly American) business by reducing corporate taxes. This, in turn, helped stop the "brain drain," or emigration of talented graduates, and in fact influenced thousands of expatriates (including Farren) to return. Social and economic development then led to political breakthroughs such as the 1998 Good Friday Accord.

Things went well until the dot.com bubble burst and the 9/11 attacks caused a recession in the United States. This caused a slowdown in trade worldwide, but by joining the eurozone around the same time Europe lowered interest rates, Ireland got a massive fiscal stimulus.

On top of that, the government abandoned fiscal purdence. In an effort to secure the next election, public sector employees got massive raises, personal taxes were lowered, and numerous deductions were initiated.

As in the U.S., a housing bubble followed. No-money-down loans led to speculation, and Anglo-Irish Bank was expecially vulnerable. Although it was not involved in the sub-prime market that popped the bubble, the collateral it required for loans proved to be overvalued. When the short-term financing on which Anglo depended dried up, it had to declare bankruptcy. To protect investors, Ireland nationalized the bank.

Fitzpatrick lost everything (although he will still live comfortably off his wife's portion of the wealth). Ahern resigned amid allegations of corruption.

After the wild party of the early 21st century, Ireland is now suffering a massive hangover. Given the historic aversion to renting and landlords, a higher percentage of Irish than Americans own houses, and therefore were affected by the bust. On a per capita basis, the debt burden on the population is about three times bigger than in the U.S. The "Celtic Tiger" phase is over.

Fortunately, there's no going back to the 1950s. Despite the knock-down blow Ireland got from the global crisis, society will move on, albeit subdued and with a greater sense of austerity.