Yet Another Country: Ireland Seeks an International Bailout

Ireland's request for an international bailout in November 2010 — the package that would total €85 billion — followed a trajectory that analysts of the eurozone debt crisis had seen before: a country whose government had made commitments that its economy could not sustain, a gradual loss of market confidence, rising borrowing costs, and finally the formal acknowledgment that external support was required.

What made Ireland's case distinctive was its origin. Unlike Greece, where the crisis had grown from years of government budget deficits and understated debt, Ireland had run budget surpluses through the 2000s and maintained low government debt. The crisis came not from fiscal profligacy but from the Irish government's decision in September 2008 to guarantee the liabilities of the country's six largest banks — a guarantee so broad that it brought the banking system's enormous losses onto the government's balance sheet.

Those losses were staggering. Irish banks had financed a property bubble of remarkable scale, extending loans that were never going to be repaid to developers building houses and commercial property that the economy could not absorb. When the bubble burst, the banks were insolvent, and the government guarantee meant the Irish state was insolvent along with them.

The bailout conditions, negotiated with the European Union, European Central Bank, and International Monetary Fund, required deep cuts to public expenditure and increases in taxation at precisely the moment when the economy needed stimulus rather than austerity. The Irish public, who had not voted for the bank guarantee and had not benefited from the property bubble in proportion to the costs they were being asked to bear, received the terms with a mixture of fury and resignation.

Whether the rescue would restore market confidence, and at what social cost — spending cuts, tax rises, emigration, hollowed-out public services — was the question hanging over Dublin. The financial mechanics were agreed in a week; the bill would be paid over a generation.