How the Irish Bubble Burst

Tuesday, April 12th, 2011

If you want to study the economic crisis of the last few years, Theodore Dalrymple says, go to Ireland, where you will find it in its purest form:

The madness that gripped the country can be gauged from a few examples. A 25-acre piece of land on the edge of Dublin on which a derelict factory stood sold in 2006 for $550 million. After the banking collapse two years later, it was valued by the National Asset Management Administration, the public-sector organization set up to handle the banks’ toxic assets, at $80 million, a sum itself arbitrary in the absence of a flourishing market.

The Anglo-Irish Bank, which eventually collapsed and left taxpayers a legacy of approximately $40 billion of debt, lent an average of $1.7 billion to each of six property developers; it lent more than $650 million each to another nine. A house in Shrewsbury Road, Dublin, sold for $80 million in 2005 but, now standing empty, is on the way to dereliction, and no house on the road — a millionaires’ row — has sold for the last two years, despite a fall in prices of at least 66 percent.

During the boom, taxi drivers and shop assistants would tell you about the third or fourth house they had bought — on borrowed money, of course — and of their apartments in Europe, from Malaga to Budapest to the Black Sea Coast of Bulgaria. It was not so much a boom as a gold rush, or a modern reenactment of the Tulipomania.

All this would not have been possible were it not for the insouciance of foreign banks. The Royal Bank of Scotland alone lent $50 billion in Ireland. German banks extended $140 billion in credit and the British banks as much again. The champions, on a per capita basis, were the Belgians, weighing in at $57 billion. (The cautious Americans lent only $70 billion.)

The gross external debt of Ireland is just a fraction less than half a million dollars per head, that is to say, more than $2 trillion in total. It is not difficult to see why a rescue was needed, or who was being rescued: not the Irish, but all of us.

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