Ireland: At economic “ground zero”

DUBLIN, Ireland — After the binge of the "Celtic Tiger" years, Ireland has been jolted awake with the mother of all hangovers, an empty wallet and a horrendous bill.

On Thursday the government shocked a bewildered nation with the disclosure that the final cost of bailing out the Irish banks could rise to 50 billion euros ($69 billion). This is much more than previously admitted, and the impact on the country and the population of nearly 5 million has quickly became apparent.

The bailout will cost every man, woman and child in the republic 10,000 euros. Ireland will have to endure savage cuts in expenditure. There will be hair-shirt budgets for at least four years. And the Emerald Isle, warned the European Union, can now no longer remain a low-tax economy.

Finance Minister Brian Lenihan agreed the figures were “horrendous," but said they "can be managed over a 10-year period.”

The reaction of the media in Dublin and the world’s financial capitals was pretty uniform: Ireland’s Celtic Tiger is dead.

The Daily Star in Dublin splashed a cover picture of a tombstone with the inscription “Ireland R.I.P.” The Guardian in England ran a headline “Ireland Busted.” The Wall Street Journal said convulsions in Dublin were adding to concerns that Ireland may go the way of Greece and have to be rescued by the International Monetary Fund.

International approval of Ireland's handling of the crisis is critical for the demoralized and unstable Irish coalition government of Taoiseach (prime minister) Brian Cowen. It must reassure the financial markets that it can manage the country's spiraling debt costs.

Lenihan seems for the moment to have succeeded in what the Financial Times conceded was at least “a step — a small one, and not before time — towards solving Ireland's banking crisis.” In the meantime, like an erring customer groveling before a bank manager, the government has had to promise not to borrow any more money just now; the exchequer will not seek any more emergency funding from international lenders until next year.

The calamity in Ireland is the result of reckless lending by its banks during a boom that ended in 2007, and which, as property prices plunge, has become one of the biggest busts in history.

The cost of winding down Anglo Irish bank alone is estimated at 34 billion euros. Its directors lent outrageous sums to developers to buy sites and acquire properties that in many cases have become entirely worthless.

Even more shocking for a country where the banks were seen as solid pillars of the national infrastructure, one of the two biggest financial institutions, Allied Irish Banks, was practically nationalized with an injection of 3 billion euros and the brusque removal of its chairman and managing director on Thursday.

Lenihan, who two years ago estimated that the Anglo Irish Bank bailout would cost only 4.5 billion euros, claimed he was bringing closure to the “nightmare the government has had to live with, the Irish people have had to live with, and I have had to live with, since September 2008.”

Meanwhile, the deficit for this year will be 32 percent of gross domestic product, 10 times the limit set for member countries by the EU.

Cowen admitted that the Irish people were “rightly angry” at having to bear the burden of the profligate spending by bankers and developers, encouraged by cronyism at the highest levels. That anger was expressed on Tuesday when a protestor, 41-year-old Joe McNamara, drove a cement truck up against the gates of the Irish parliament building, Leinster House, in Dublin. His act gave  rise to countless internet jokes about “concrete” measures to tackle the problem.

In the words of prominent businessman Denis O’Brien, Ireland is at “ground zero” and has to start rebuilding. He was speaking at a dinner in honor of Bill Clinton at University College Dublin on Thursday. At the end of a three-day visit, Clinton told an enraptured audience that Irish people were lucky — the lights came on at night, the toilets flushed, the government worked and they lived in homes they did not have to build themselves, whereas in some countries he visited people had none of these things. Ireland would be “just fine,” he said. It was about the only uplifting moment on Ireland’s “black Thursday.”