The Eurozone is back in the news this week with what at the surface level is a good story — Ireland is leaving the European Union/International Monetary Fund bailout mechanism and regaining its economic sovereignty. Five years after it became the first European country to enter a post-financial crisis recession, Ireland is being heralded as a model for how austerity can put a nation back on its feet. There is no question that the country’s temporary sacrifice of economic freedom halted what was one of the steepest declines in relative wealth in modern history. However, the reality is that Ireland has yet to hit rock bottom, and when it does, it will likely remain there for a very long time. Irish Prime Minister Enda Kenny may have been right when he said that leaving the bailout sends a “powerful signal internationally, that Ireland is fighting back, that the spirit of our people is as strong as ever.” But the government has not prepared the public — or potential outside investors — for dangers that continue to lurk in the Irish economy or the stark choices that lie ahead.
The roots of Ireland’s economic crisis are relatively straight forward: The country’s roughly 4.5 million people needed a $117 billion bailout in 2010 because key banks had no money, the nation had gone on a spending and credit binge, and the government could not finance its borrowing to fund its public sector without an outside infusion of capital. Necessary as it was, the bailout struck deep in the Irish psyche because it meant the country had lost its economic freedoms to decision-makers in Brussels after being praised for so long as the “Celtic Tiger.” To sustain its bailout commitments as a member of the Eurozone, Ireland embarked on a deep economic austerity program — widely praised in financial capitals — that cost each Irish citizen roughly $13,700, on average, though the final cost will be far higher.
Sean Kay is a contributor at War on the Rocks.
Image: Jon Sullivan
