Ireland's Economic Crisis - Time to Act.

Essays From Over 40 Leading Irish Thinkers At The MacGill Summer School 2009

by Joe Mulholland (Volume editor) Finbarr Bradley (Volume editor)
XVI, 350 Pages
Series: Carysfort Press Ltd., Volume 784


«...a seminar worthy of Harvard, Yale or Oxbridge.»
«Without clear political leadership, the current economic crisis and the challenges of globalization might actually undermine some of the foundations of democracy.»
«As a former Chairman of AIB, the first thing for me to say in plain and unvarnished language is that some serious mistakes were made in Irish banking and there is no getting away from that.»
«We have to have the best teachers teaching in the subjects vital to the country’s interests. From my perspective these are the STEM subjects: Science, Technology, Engineering and Maths.»
«Certain professions have yet to play their part and have yet to tell us how they will reduce their fees and charges.»
«The litany of bad practice we have since learned about, pertaining to activities within the banking sector, has varied from the incompetent to the morally suspect to the illegal.»
«The first; where did all the money go? The second; will anyone go to jail? The first is easy to answer; it was never there in the first place. The second is tricky; we do not know yet.»
«In the end, when it comes to day-to-day expenditure, a state is like a household, it has to live within its means.»
«We built a strong, open, exporting economy but it was hijacked by property developers and speculators.»

Table Of Contents

  • Cover
  • Title
  • Copyright
  • About the author
  • About the book
  • This eBook can be cited
  • Acknowledgements
  • Contents
  • Foreword (Joe Mulholland and Finbarr Bradley)
  • Official Opening of 29th Annual Macgill Summer School (Michael McLoone)
  • The Ninth Annual John Hume Lecture: We Need A Strong Civil Society (Dr Diarmuid Martin)
  • 1. How and Why Did It All Go Wrong?
  • Hard Work And Sacrifice Were Not In The Irish Lexicon (Rowena A. Pecchenino)
  • Policy Lessons From Ireland’s Latest Depression (Karl Whelan)
  • Mistakes Made And Remedies Needed (Dermot Gleeson SC)
  • Difference Between Ireland And Iceland (Fridrik M. Baldursson)
  • 2. The Banking Crisis, Reform and Regulation
  • The Rest Of The World Knew Before We Did (David Murphy)
  • Irish Banking − Problems And Reforms (Alan Dukes)
  • Banking Policy During And After The Crisis (Patrick Honohan)
  • From Incompetent To Morally Suspect To Illegal (Dan Boyle)
  • 3. Climbing Out of Recession − The Options?
  • The Plan For Recovery (Brian Lenihan TD)
  • Restoring Trust Is Crucial (George Lee TD)
  • Building A New Republic (Eamon Gilmore TD)
  • The Steps To Economic Recovery (Peter Bacon)
  • 4. How to Create the Smart Economy
  • Right Leadership And People Making Hard Decisions (Jim O’Hara)
  • Smart Economy Is About Smart Integration (Michael Fitzgerald)
  • Repositioning Ireland’s Economy (Mary Coughlan TD)
  • 5. Need For a National Strategy and Vision
  • A New Politics For A New Society (Enda Kenny TD)
  • Time Ripe For Radical Industrial Policy (Martin Murphy)
  • Towards A Second Republic (Michael O’Sullivan)
  • 6. Reform and Competitiveness
  • Two Options − Raise Taxes Or Cut Spending (Colm McCarthy)
  • Urgent Need To Restore Competitiveness (Annette Hughes)
  • Competitiveness Is A Meaningless Concept (David Begg)
  • Results Are Needed Now − Not More Reports (Brendan Tuohy)
  • Unions Must Have Key Role In Transformation (Peter McLoone)
  • Genuine Workplace Change A Win-Win Option For All (Danny McCoy)
  • 7. Irish Education and the Economy
  • Only The Best Will Be Good Enough (Don Thornhill)
  • Universities: The Heart Of Innovative Ireland (John Hegarty)
  • Education Is Key To Recovery (Brian Hayes TD)
  • 8. Energy And the Economy − New Approaches?
  • We Must Prepare For A Different Energy Diet (Jeremy Gilbert)
  • Renewables − Key Part Of Way Forward (Pádraig McManus)
  • Energy − Determining Factor In Recovery (Simon Coveney TD)
  • Energy – Opportunities And Challenges (Paul Dowling)
  • 9. The Potential of an All-Island Economy
  • Working Together On Island Makes Sense (Dara Calleary TD)
  • Development Of An All-Island Economy Is Crucial (Martina Anderson MLA)
  • 10. Lisbon − Implications for Ireland
  • Ireland Needs Europe But Europe Needs Ireland (David O’Sullivan)
  • Ireland Must Protect Status Within Europe (Angela Kerins)
  • Lisbon Is A Matter Of Trust (Pádraig MacLochlainn)
  • A Yes Vote Is In Our Interest (Mícheál Martin TD)
  • We Need Europe More Than Ever (Lucinda Creighton TD)
  • Rejecting Lisbon Is Not Rejecting Europe (Patricia McKenna)
  • A No Vote Would Impact On Investment (Ruairí Quinn TD)
  • 11. The Economy, Culture Creativity
  • Creativity Can Inform And Enhance Innovation (Fiach Mac Conghail)
  • The Arts − Part Of The Fabric Of Our Economy (Mary Cloake)
  • Cultural Distinctiveness As Competitive Advantage (Finbarr Bradley)
  • Valuing Art − In Good Times And Bad (Martin Mansergh TD)
  • 12. A New Political Landscape?
  • The State Of The Economy Is The Determining Factor (Noel Whelan SC)
  • New More Radical Fine Gael Is Emerging (Frank Flannery)
  • References

←x | xi→


Joe Mulholland and Finbarr Bradley

‘We have always known that heedless self-interest was bad morals; we now know that it is bad economics.’ – US President, Franklin D. Roosevelt

We met in extraordinary times and the words of the 32nd President of the US had special resonance. There was an air of crisis at the twenty-ninth MacGill Summer School. The feeling, though, was not one of despondency but rather of shock and anger that the economy had been so mismanaged. The spectre of the report of An Bord Snip Nua loomed large with the School taking place within days of its publication. Chairman Colm McCarthy spelt out to our audience what had happened to the economy to bring us to the point where we are borrowing over €400 million per week for day-to-day expenditure. At the time of putting this book to bed, hovering over the debate is NAMA and its future, though in Glenties in July it appeared that NAMA was accepted as a fait accompli. Ireland’s foremost banking academic, Patrick Honohan, Governor-Elect of the Central Bank, was with us and he outlined his alternative and creative NAMA 2.0 proposal.

The party is definitely over. Having lived through good times, are we now ready to live through bad times? The country that had come out of the dark years of the 80s and decades of depression to become one of the most attractive locations in the world for foreign direct investment is no more, at least for the next number of years. Now we are suffering from the worst recession of any advanced country since the 1930s. The controversial article by Nobel laureate, Paul Krugman, in the New York Times in April, Erin Go Broke, appeared, in fact, to get it right. Krugman wrote that in the third freest economy in the world behind Hong Kong and Singapore what was especially free was the banking sector ‘which used its freedom to finance a monstrous housing bubble’. Krugman went on to describe how Ireland, like its near-namesake, Iceland, ‘had jumped with both feet into the brave new world of unsupervised global markets.’ Fridrik Baldursson of Reykavjik University was with ←xi | xii→us in Glenties to tell from direct experience, having been involved in the crisis, what had brought about the collapse of their banking system with no European Central Bank to turn to and how, in some ways, they have better prospects than Ireland of getting out of their crisis.

It was and remains obvious, as will be evident from these pages, that Ireland is in deep trouble. Our disastrous downturn has happened at the same time as the world recession but, to make matters worse, we will find it difficult to take advantage of the upturn which appears to be in its infancy in some of the big economies and notably in the US. Burdened with a chaotic situation in the banks which, as was pointed out by several speakers at MacGill, we have managed to survive only because of the injection of funds of the order so far of €130 billion by the European Central Bank as well as the nationalization of Anglo-Irish Bank, the Government is in a political strait-jacket when it comes to taking steps to re-invigorate the economy. Add to this difficult situation a steadily increasing budget deficit, growing unemployment, falling domestic activity due to the collapse of the construction sector and the subsequent diminution of domestic consumer spending as well as the serious erosion of the competitiveness of the country’s exports and you get a clear picture of just how serious our economic crisis is. How we allowed ourselves to get into it is, at this point, somewhat academic, apart from the lessons to be learned about regulation and about the ability of our political system as well as the institutions of the state to run the economy so that a crisis of this dimension is avoided in the future or at least minimised.

Audiences were aghast as speaker after speaker, with extensive experience in Irish public life, described how and why the economy went so awry. Eamon Gilmore, for example, said the economy had been hijacked ‘by speculators and developers’. It is true that many of our problems are due to overdependence on house building. By 2007, construction accounted for 13.3 per cent of employment, the highest in the OECD. Very strong growth in public spending was financed by revenue generated largely from taxes on property which could not possibly be sustained. As Karl Whelan illustrated, a substantial slowdown was looming for Ireland by 2007 but evidence was ignored even though this was obvious as far back as 2002. Of course there was plenty of blame to go around but, characteristic of the School, we did not over indulge in looking back. The thrust was what road now needs to be followed, what choices need to be made in terms of economic policy, public services, and of course, the regulation of financial institutions, in order to reinvigorate our economy and society. We must equip ourselves for setting out on the path to recovery and this was very much on the agenda in Glenties. Competitiveness is key and as Peter Bacon and others stated, wages and salary cuts of 10-15 per cent are essential in this process.

As is also clear from these papers, Ireland faces not just an economic crisis, but a political, social and moral crisis as well − a whole confluence of circumstances built ←xii | xiii→up during the Celtic Tiger and indeed decades before. The Irish celebrated materialism, affluence, consumerism, and self-indulgence with gusto, according to Rowena Pecchenino, evils Pope John Paul II warned against on his 1979 visit. In Pecchenino’s words, ‘hard work and sacrifice were not in the Irish lexicon’ during those heady years when, as we all know, it was difficult to find native tradesmen willing to do handiwork at a reasonable price, with Poles, Latvians, Lithuanians, and others preferred for work of all kinds.

The Official Opening speech by Michael McLoone raised the question of whether Ireland’s political and social institutions have the capacity not alone to decide what has to be done but the will and competencies to do so within a timescale that gets us out of the hole quickly but without doing serious damage in the process. During the boom, critics claim the well off got richer while the poor were left behind and the numbers living at the margins of society continued to grow. However, according to Minister for Finance, Brian Lenihan, everyone benefitted from the Celtic Tiger, including those on social welfare payments. Economic success was not achieved without cost. In the headlong pursuit of prosperity, there were negative impacts on the natural environment and a sense of community which, in many people’s opinion, dented and weakened the social and cultural fabric of the nation. In the Ninth Annual John Hume Lecture, Dr Diarmuid Martin argued the need for a strong civil society. Self-interest alone, he said, no matter how enlightened, cannot be the sole measure for evaluating relations within society. Ireland needs not just a revival of social partnership, but an even wider model of social participation.

While there was a sense of resignation at the sorry state of our finances, the consensus was that the time for action is now and to gear ourselves for recovery − whenever it comes. There was deep concern about the slow pace of change and inadequate governance in the public sector. Reform is essential although if one is to judge from the remarks of one of our most distinguished former civil servants, Brendan Tuohy, it is far from being a given. Perhaps it was the need to maintain social partnership and consensus that slowed down the reform process and prevented the necessary radical measures being taken. He painted a bleak picture with report after report over the years analysing the effectiveness, efficiency and value for money in the public sector. Yet, either they were never implemented at all or only partly implemented. Results, not more reports, are needed now. Here is the challenge: deliver public services that are lean and efficient, not self-serving, expensive and ultimately unaffordable.

The private sector has fared no better. It has become obvious in quite a dramatic and terrible way that not enough attention was paid to what the bankers and developers here and elsewhere were up to. Obviously, those in positions of responsibility were not paying attention either. Is it any wonder we are in a crisis when, as David Murphy points out, Irish banks insisted time and again in 2007 and 2008 that they were in fine fettle with sufficient capital to meet the worst scenarios ←xiii | xiv→that could be envisaged. Eugene Sheehy, then Chief Executive of AIB, stated in October 2008 then he would rather die than raise new capital! Its former Chairman, Dermot Gleeson, admitted at Glenties that serious mistakes were made; loans were given out which should not have been. Dan Boyle maintains that banking practices varied from the incompetent to the morally suspect to the illegal. He believes we can learn best from Canada, a country which stands alone in not having had a banking crisis, due largely to having a system of regulation more interventionist and more stringent in standards applied to its banks.

As to the state of the economy now, our choice, as Colm McCarthy bluntly puts it, boils down to either raising taxes or cutting spending. Brian Lenihan maintains that the only path to recovery is to have sustainable public finances, regain competitiveness and repair our banking system. But George Lee says it is a mistake to correct the catastrophic imbalance in public finances at the pace now proposed. Unless the global economy, as he puts it, ‘experiences the fastest revival since Lazarus got up out of his bed and walked’, then the burden of fiscal adjustment placed on the public may be too great. It is a perspective with which David Begg concurs. Wage and public spending cuts, he argues, will impart a further dangerous deflationary shock to the demand side of the economy. Conventional perspectives on competitiveness are a questionable concept, he added.

As a society we are going to have to do more with less in order to limit the damage to our living standards and return to a path of sustainable economic growth. Despite a painful adjustment, Danny McCoy is in no doubt that reduction in unit labour costs, delivered through public pay reform, will strengthen our long-term competitive position. But will Mary Coughlan’s call at Glenties to protected professions, who have yet to reduce high fees, continue to fall on deaf ears? References from the floor pointed to the exorbitant fees of doctors with medicines costing far more than in other member states of the EU.

We have to move forward, and quickly. The question is: can we rebuild a damaged economy as well as a damaged society? Yes we can, provided the right measures are now taken. Examples were given by those in positions to know what this might imply in practice. Jim O’Hara, CEO, Intel Ireland, supported the current strategy of strong investment in 4th level education but urged that the focus be on how to get more research from the same budget and achieve greater commercialization of that research. He stressed that young people must be imbued with the vision, ambition and confidence to create start-ups and believe that they can grow our own Irish Nokia or Google. Martin Murphy, who heads up HP Ireland argued that as an open economy on the periphery of Europe, excellence has to be our trade mark – both to attract further investment to this country and crucially to build an indigenous global enterprise culture of our own. The objective is to deliver a better service at a lower cost through innovation. The aim is to think smart, work smart and buy smart.

←xiv |

Of course, many other issues were discussed at Glenties such as education, energy, Lisbon, the all-island economy and how Ireland’s distinctive cultural resources contribute to competitiveness. In summary, there is, as is vividly illustrated in these pages, an urgent need for an invigorated national strategy and sense of purpose. Some politicians and business leaders make powerful contributions on this theme. Fine Gael Leader, Enda Kenny, says ‘Our political culture is discredited. We cannot fix our economy or create a just society unless and until we also fix our politics’. He calls for fundamental reform arguing that the findings of An Bord Snip Nua are an absolutely damning indictment of the way that Government has been run for the past decade.

Ireland’s fundamentally changed circumstances require a radical transformation in its policymaking. The development model must be founded on harnessing national innovative capability, focusing on social cohesion and proper regulatory oversight. Contributions from the podium and floor in Glenties ranged from policy, vision and context to practical suggestions on how the country can emerge from its present crisis. Bleak though the prognosis was, spirits were neither dampened nor was good humour absent. Debate, reflection and, as ever at MacGill, courteous disagreement, was stimulating and lively. The papers in this volume, we feel, make a valuable contribution to the debate about Ireland’s future economic welfare. Policy-makers, business leaders, academics, opinion formers, students and all those interested in the future of this nation will gain invaluable insights by reading and studying their contents.

Tá súil againn go mbainfidh tú taitneamh as iad a léamh!

←xvi | 1→

Official Opening of MacGill Summer School

Michael McLoone
Manager, Donegal County Council

Born Ballyshannon, Co. Donegal. Trainee Health Inspector (1962-6), Health Inspector, Sligo Co. Council and Senior Health Inspector North-West Health Board (NWHB) (1966-75). Personnel Officer, Midlands Health Board (1978-81). Programme Manager NWHB (1981-8). Chief Executive, Beaumont Hospital (1988-94). County Manager, Donegal Co. Council since 1994. Appointed Chairman, Irish Blood Transfusion Service in 2001. Chairman, Letterkenny Institute of Technology since 1996. Member Western Development Commission (1996-2001). Chairman, Donegal Enterprise Board since 1994.

Ireland also had the unenviable distinction of being the first Euro area economy to record a recession, being the first to have two consecutive quarters of negative economic growth.


XVI, 350
ISBN (Softcover)
Publication date
2022 (March)
Oxford, Bern, Berlin, Bruxelles, New York, Wien, 2009. XVI, 350 pp., 26 fig. b/w.

Biographical notes

Joe Mulholland (Volume editor) Finbarr Bradley (Volume editor)


Title: Ireland's Economic Crisis - Time to Act.
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368 pages