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Mortgaging Irish Independence

From Financial Crisis to Socialist Resistance

Julie L. MacArthur is a Ph. D. candidate in political science at Simon Fraser University in Vancouver, Canada.

A specter is haunting Ireland—the specter of James Connolly.

Connolly was shot to death by a British firing squad for his role in Ireland’s 1916 rising for home rule. Celebrated as a hero of Irish independence by Irish political parties of both left and right, his socialism is all too conveniently overlooked. The Irish struggle is one that speaks to the challenges of independence, sovereignty, and democratic freedom, both then and now, for people of all countries. What value is formal political independence if it is not backed up by economic control; if the real decisions of public policy are made in boardrooms and backrooms rather than main streets and parliaments? For Connolly:

If you remove the English army tomorrow and hoist the green flag over Dublin Castle, unless you set about the organisation of the socialist Republic your efforts would be in vain. England would still rule you. She would rule you through her capitalists, through her landlords, through her financiers, through the whole army of commercial and individual institutions she has planted in this country and watered with the tears of our mothers and the blood of our martyrs.1

A Who’s Who of global finance descended on Dublin in November 2010 to “hoist their flags,” from the International Monetary Fund (IMF) and the European Central Bank (ECB), to NM Rothschild & Sons, Merrill, Barclays, J.P. Morgan, and Goldman Sachs. These power brokers arrived to prevent “contagion” from the financial crisis in the small country of 4.5 million people. The stakes are high: political backlash from austerity measures is threatening the most recent plan to recapitalize insolvent banks with tens of billions of euros. Investors want their money back, and Ireland’s regulatory free-for-all of the past decade has meant that much of the money on the block came from Americans and Europeans. It is no surprise, then, that they are leading the charge for repayment.

Unfortunately for the Irish people, the ECB and IMF came armed with the same ideological and policy tools that caused this crisis: a commitment to neoliberal growth models, open markets, and the primacy of financial interests over those of labor, sovereignty, or independence. There is not much in the way of alternative ideas from Ireland’s two major parties, Fianna Fáil and Fine Gael, as both are devotees of free-market fundamentalism. Indeed, it was both parties’ desire, proclaimed loudly through the 1990s and 2000s, to be “closer to Boston than Berlin” in regulation and finance.

The Irish meltdown is big news for a small country. A quick scan of the more than ten thousand news articles on Ireland’s meltdown points to the focus on “calming,” and “restoring confidence” in financial markets, as well as “belt tightening,” “austerity,” and “tough medicine.” This benign language is justified by a narrative claiming the crisis was a product of fiscal deficits from public overspending, and contagion from the financial turmoil in the United States in 2008, with some regulatory mismanagement of overenthusiastic lenders thrown in for good measure. There is not much choice for the Irish people but to pay up and endure.

The real story is far more political.

The Celtic Tiger’s House of Cards

Conveniently divorced from the conventional narrative is the fact that the “Celtic Tiger” had little basis in the real economy. Certainly, Irish GDP soared and unemployment plummeted from 1995 to 2007, and many Irish people started taking holidays in exotic locales. This was no small thing for a country long considered the “poor man” of Europe. But these developments hid the fact that the growth was built on an untenable foundation of foreign deposits and real estate speculation. It also hid the fact that much of this wealth was not being used to “develop” Ireland, but was, in fact, leaving the country.

Ireland’s GDP growth came from policy choices based on a fervent belief in supply-side economics, supported by large capital flows from the United States and the European Union. These factors made Ireland, along with Iceland, the darling of the Heritage Foundation index of economic freedom (Ireland was one of the top five countries in the world for 2010, leading Europe). As a result of these ideological commitments, Irish governments, led by both major parties, set the lowest corporate tax rates of the Eurozone (12.5 percent) and provided subsidies and incentives to attract multinationals like Dell, Intel, Microsoft, Pfizer, and Google. These multinationals accounted for 70 percent of Irish exports and employed two hundred fifty thousand people in Ireland, a remarkable level of dependency by any standard.2

But Joseph Stiglitz, Amartya Sen, and Jean-Paul Fitoussi’s 2009 Report by the Commission on the Measurement of Economic Performance and Social Progress showed something very different going on during the so-called Celtic Tiger years (1995-2005). These policies, while contributing to a rise in GDP, obscured the real picture of what happened in Ireland, which was falling household incomes in relation to GDP. What was counted as a benefit to Ireland was actually profits repatriated by foreign investors. Indeed, through these years GNP was at least 15 percent below GDP. This trend is accelerating; in 2009 the country’s GNP was 23 percent below its GDP.3 By contrast, the comparable figures for GNP for France and the United States were 14 percent and 11 percent, respectively, below GDP for 2009.4

In a 2006 study entitled Globalization and the Irish Economy, economists Philip Lane and Francis Ruane pointed out the vulnerability of Ireland to financial markets.5 They stressed that domestic enterprises are relatively weak, making up only 10 percent of Irish exports, and that foreign firms were earning 17 percent yields on investment. This was because, during the Celtic Tiger years, Ireland became “one of Europe’s most impressive tax havens,” where corporations set up ghost companies (with very few employees) to escape taxes in other jurisdictions.6

Trade unionists also questioned the distribution of wealth and the focus on GDP growth. Ireland’s government did not agree. In a fit of hubris, Bertie Ahern, former Taoiseach (Prime Minister) from 1997 to 2008, famously dismissed critics of the model at a trade union conference by saying that “sitting on the sidelines cribbing and moaning is a lost opportunity. I don’t know how people who engage in that don’t commit suicide.”7 (Suicide rates, by the way, are on the rise and expected to continue as a result of unemployment.8)

A final leg of the Celtic Tiger puzzle was a property bubble, financed by cheap money from global markets, artificially inflating personal wealth and balance sheets alike. The Bank of Ireland, AIG, and Anglo Irish lent huge sums, more than three times Ireland’s GDP, on the ridiculous belief that property values would rise forever. As in the United States, subprime and no-money-down mortgages were plentiful, and prices skyrocketed. University College Dublin (UCD) economist Morgan Kelley, dubbed “Dr. Doom” in the media for his assessment of the Irish economy, argued time and again that the banks in Ireland were not merely short on cash, but that they misrepresented their losses to governments and passed on these bad debts.

The cozy relationship between the major political parties, developers, and bankers that arose during the good times played a key role in what was to come next.

2008: The Crisis Hits

When Lehman Brothers collapsed in 2008 and credit markets seized up, property prices halved and, as a result, the country’s construction and property sectors came to a standstill. Consequently, a significant portion of bank assets became worthless. The Irish government came up with a “made in Ireland” solution: it guaranteed €485 billion of Irish and foreign bank liabilities, socializing the bad debts of developers and banks. This amounted to 176 percent of GDP in 2009.9 The bad debts of the boom’s biggest profiteers were placed under the National Asset Management Agency (NAMA), as banks were given government bonds in return for the worthless assets.

Over the remainder of 2009 and all during 2010, the story only got worse for Ireland. The banks became insolvent: international financial markets realized this, and the bank guarantees given by the Irish state have now cascaded into insolvency of the state. Downgrades on Irish debt by rating agencies have made government financing prohibitively expensive. The EU commissioner Olli Rehn and the IMF’s European Deputy Direct Ajai Chopra arrived in Dublin on November 16, 2010, to work out an €85 billion lending package for the country, which was finalized on November 28.

On November 24, to meet the conditions of the IMF and ECB loan, the government announced the deepest spending cuts in the history of the Republic. Irish people are now being dosed with a €15 billion four-year deficit reduction plan. This is on top of last year’s €5 billion budget cuts. This time, the state plans to raise income and sales taxes by €5 billion and cut spending by €10 billion. This includes reducing welfare payments by €3 billion, eliminating twenty-five thousand public sector jobs, and raising sales taxes by 2 percent (to 23 percent) by 2014.

Not only are the Irish people bailing out the very property developers who drove up house prices, but the Irish state is now, because of assuming the bank debts, unable properly to finance crucial areas such as retirement pensions or teachers’ salaries. According to Morgan Kelly, “[E]very cent of income tax that [an Irish person pays] for the next two to three years will go to repay Anglo’s losses, every cent for the following two years will go on AIB, and every cent for the next year and a half on the others.”10 According to another estimate, “[E]ach Irish family of four will be liable for €200,000 in public debt by 2015.”11

Perhaps most significantly, there will be no change in the corporate tax rate of 12.5 percent (one of the lowest corporate tax rates in Europe) “under any circumstances.”12 Finance Minister Brian Lenihan says it “can’t and won’t be changed,” and claimed that the €15 billion in the austerity package of spending cuts and new taxes is “fair and proportionate.”13 Of course it is not: these policies represent an overwhelming burden of costs for the general public. For example, the minimum wage has been slashed by 12 percent, and Eurozone finance ministers have demanded, as a condition of the loan package, that Ireland raid €10 billion from its national pension fund. In all, €20.7 billion from this public pension fund was funneled to the banks over the last year and a half.14

Popular Backlash: The Economic Is Political

There are increasing signs that the public, furious with its political leaders, is resisting further austerity packages and the loan conditions. This political opposition to the status quo transcends electoral politics. On November 27, 2010, close to one hundred thousand people marched through the streets of Dublin. Their banners and placards quoted James Connolly and other heroes of Irish independence. These protests have been growing in size and frequency over the past year.

To add fuel to the bailout fire, Dermot Ahern, the Minister for Justice, was slated in December 2010 to receive a €325,000 “golden handshake” on top of a more than €100,000 yearly pension.15 The pensions and perks allocated to the Teachta Dálas (or “TDs”)—members of the lower house of the Irish Parliament—have long been a source of popular anger, but in the current context, it is particularly loathsome. The political class was not alone in rewarding its own. Allied Irish Banks reportedly handed out €60 million in executive bonuses during the last two years of austerity for the general public.16

As the costs of propping up corrupt officials, developers, and international bankers become increasingly unpalatable, politics in the Republic is shifting left. According to a December 2, 2010, poll, Sinn Fein—“we ourselves,” in Irish—was two points higher than ruling party Fianna Fáil. They won a historically unprecedented by-election seat in Donegal, November 25, and their support in the South has doubled in the past month, from 8 percent to 16 percent.17 Political heavyweight Gerry Adams is giving up his seat in Westminster to run in the Republic’s February 2011 election. These gains have opened up the possibility of a coalition with Labour. They also represent a colossal swing in post-independence Irish politics, which have been dominated by sixty years of Fianna Fáil and Fine Gael rule.

Sinn Fein is not the only party poised to gain from populist anger. The Socialist Party (Ireland) and the Worker’s Party both sit to the left of Sinn Fein on the political spectrum and occupy local council—and European Parliamentary—seats, though they are currently unrepresented in the Dáil (Irish Parliament). Both parties are also active in organizing rallies and generating an alternative narrative to business-as-usual politics in the Republic, including the recent formation of the United Left Alliance with People Before Profit candidates.

Any electoral gains on the left may be short lived. In the first place, free-market party Fine Gael is also building momentum politically, as more conservative voters swap one establishment party for another. Furthermore, nearly one in three Irish youth are predicted to leave the country in coming years, to make ends meet in countries such as Canada and Australia, and this erodes some momentum for progressive change. Finally, the Congress of Irish Trade Unions—the organizer of the largest and most recent rally—is seen as tainted by years of “social partnership” with ruling parties. Taken together, these factors may undermine the development of a cohesive and coherent political countermovement.

The Coming Storm

What has transpired to date in Ireland is just the beginning. Despite the guarantees and billions of dollars of austerity measures that disproportionately target the poor and weak in the Irish population, the financial markets remain unconvinced of Dublin’s ability to balance the books. Standard & Poor’s downgraded Irish sovereign debt by two grades on November 24, 2010. Furthermore, the political turmoil continued in January 2011, as the government was forced into calling a February election when the Green Party of Ireland withdrew from the governing coalition, and embattled Taoiseach Brian Cowan resigned. The banks are still far from solvent and credit default swap markets are now betting that Ireland will default on its debt within five years.18 The markets are right in their assessment. With an interest rate of 5.8 percent on the ECB-IMF bailout package, interest payments alone on state debt will be more than 20 percent of tax revenues in 2014.

Put simply, the austerity measures are not going to work. The “green shoots” in Irish GDP for the first quarter of 2010 were entirely due to multinational exports. In Ireland, wages are dropping, prices are dropping (except in health and education), and demand is dropping. This is disastrous for the Irish economy since, as John Maynard Keynes pointed out in the 1930s, business cycles are not self-correcting. Currently, there is no climate for investment, for a real economy based on jobs, taxes, and spending to take root.

In the high-stakes game of musical chairs that is global financial speculation, the average Irish person (representing all four-plus million of them) is caught chair-less. Soon, that may change to homeless. At the household level, a mortgage crisis is poised to send another wave of shocks through Ireland. So far, people have been borrowing from friends and family to make payments. The state extended the mortgage relief in 2010 by six months (to twelve months) to stave off a rash of repossessions. Continued mortgage lending by banks has artificially held up the price floor on the housing market. These factors are all set to change as money (and time) runs out. As economist Morgan Kelly points out, the impending mortgage crisis in Ireland may further strengthen politicization: “If one family defaults on its mortgage, they are pariahs: if 200,000 default they are a powerful political constituency….The gathering mortgage crisis puts Ireland on the cusp of a social conflict on the scale of the Land War.”19

This is not just the tale of Ireland, of Irish mismanagement and Irish greed. As the global financial system grows in volume and velocity, and our political leaders attempt to find ever-cheaper ways of keeping populations “just comfortable enough,” we are all at risk. Irish policies until the last few months were seen as a model for other nations—European or otherwise—to emulate. Far from being an anomaly, or an example of rebellious independence, the Irish elites fully embody neoliberal economic principles. The Irish are not the exception; they are the rule.

Moving Forward: From Coping Mechanisms to Resistance

James Connolly and those like him fought a land war for control, not only of their houses of political debate, but also for control of their land and their economy. Irish elites and the ideology of crony capitalism that underpins them have indebted a generation of Irish men, women, and children. These citizens will be working for the rest of their lives (if lucky) to pay back mortgages worth two times the value of their house and to underwrite investors in Berlin and New York.

As the political and economic crises deepen, the usual suspects are out in force, trying to convince an angry citizenry that there is no alternative. Corporate tax rates, they argue, must stay at 12.5 percent or all business will leave the country. Debts to bankers must be paid back, or financial ruin will ensue. These claims are not without merit. Certainly, financial markets will punish an Irish default, and multinationals may very well set up their ghost companies in a country with even lower corporate tax rates (if they can find them). The Irish business elites making these arguments neglect to mention that the country is already in financial ruin, and that “staying the course” will do nothing to build a more sustainable or resilient economy for the future. These arguments are fundamentally disempowering: they lock in even further Irish dependency on foreign corporations and capital.

There are always alternatives. The government could have required creditors to bear a share of the costs by allowing defaults and some bank failures. They could also have required the companies that have benefitted for years from the corporate tax policy to pay an equal share. Google, for example, reportedly saved $3.1 billion in taxes over the last three years by setting up in Ireland.20 More recently, calls to withdraw from the European Monetary Union have emerged in order to follow Iceland’s lead of currency devaluation (an option denied Ireland). Policymakers in Dublin and their financial allies have elected to take from the public’s purses instead.

The coming waves of mortgage and debt crises may serve to politicize the citizenry of this tiny country to fight for more radical alternatives. At the outset, these may emerge as Irish people search for mechanisms to cope with austerity. One expression of this search for alternatives is rooted in the social and solidarity economy—a mode of development centered on the primacy of people over profits through cooperatives, local exchange trading systems (LETS), voluntary associations, and credit unions. Historical precedents exist in the country. The Irish credit union movement, for example, was developed to enable the rural poor to get access to credit in a time when Catholics were denied access to capital. More than 50 percent of the population now holds membership, and the movement comprises more than five hundred fifty credit unions and over three million members.21 This locally networked capital resource may prove a key asset in the coming years.

In addition to the credit unions, other forms of alternative economic development are emerging. Kinsale, a seaside town not far from Cork, is the world’s first “transitions town,” where citizens are re-learning and sharing knowledge on how to make resilient communities. The focus in these experiments is on permaculture, on learning through doing, and on harnessing local knowledge. This is increasingly important during times of austerity to hedge against rising costs for fuel, food, and the basic provisions that allow organizing to take place.

There is potential in Ireland in alternatives like these to lead to a more coherent form of economic development—one based on stakeholder needs rather than shareholder profits. This involves developing networks of production and education locally and harnessing the wealth that already exists in communities: both human and natural. By leveraging the social and solidarity economy in Ireland, a progressive movement may find the material strength to weather and even strengthen in the coming storm. However, in order for these types of initiatives to do more than temporarily fill gaps, they need to be explicitly connected to the political struggle against both foreign and domestic political and financial elites.


Ireland’s struggle today is just as much about independence and democracy as it was a century ago. Connolly urged his people to beware the trappings of political independence while ceding the economic control of the country. Those empty trappings are haunting the Irish people today. Sovereignty means very little without the power to change course, to make a choice about what costs are reasonable, are just, and are justified. Making these choices requires a real debate about capitalism and its socialist alternatives. It is too early to rate the strength of today’s Irish resistance in terms of its longevity and depth. What is clear, however, is that the stage is set for yet another contest over the competing visions of what, and who, Ireland is for.


The author is grateful to Dr. Marjorie Griffin Cohen for her tireless support and constructive feedback on this manuscript.


  1. James Connolly, “Nationalism and Socialism,” Shann Van Vocht, January 1897.
  2. Liz Alderman, “In Ireland, Low Corporate Taxes Go Untouched,” New York Times, November 25, 2010,
  3. Gordon Cavanagh, Quarterly National Accounts, Central Statistics Office, Dublin, Ireland, March 25, 2010.
  4. Joseph Stiglitz, Amartya Sen, and Jean-Paul Fitoussi, Report by the Commission on the Measurement of Economic Performance and Social Progress, Paris, 2009, 25, (last accessed January 14, 2010).
  5. Philip Richard Lane and Frances Ruane, “Globalisation and the Irish Economy,” IIIS Occasional Paper, Dublin: Institute for International Integration Studies, March 2006.
  6. Simon Johnson and Peter Boone, “In Ireland, Dangers Still Loom,” Economix Blog, New York Times, September 2, 2010,
  7. Michael Brennan and Anita Guidera, July 5 2007, “Support Groups Criticise Ahern over 'Appalling and Offensive' Comments,” Independent, (accessed December 5, 2010).
  8. Paul Corcoran and Ella Arensman, “Suicide and Employment Status during Ireland’s Celtic Tiger Economy,” European Journal of Public Health, January 2010, http://doi:10.1093/eurpub/ckp236.
  9. Eurostat, “Supplementary Table for the Financial Crisis,” Eurostat, European Commission, 6, (last accessed Jan 15, 2010).
  10. Morgan Kelly, “If You Thought the Bank Bailout Was Bad, Wait Until the Mortgage Default Hits Home,” Irish Times, November 8, 2010.
  11. Simon Johnson and Peter Boone, “In Ireland, Dangers Still Loom,” Economix Blog.
  12. William Watts, “Ireland Vows No Rise in 12.5% Corporate Tax,” Marketwatch, November 24, 2010.
  13. Simon Carswell, “Lenihan Expects Budget to Pass,” Irish Times, November 25, 2010.
  14. Laura Slattery, “Fund to Sell Equities to Realise €10bn,” Irish Times, November 30, 2010.
  15. Jody Corcoran, “SF Swing Can Make Gilmore Taoiseach,” The Independent, December 5, 2010.
  16. Ibid.
  17. Michael Gallagher, “So, Just How Many Seats Will They Win?” Political, Political Studies Association of Ireland Blog, December 9, 2010.
  18. Simon Johnson and Peter Boone, “In Ireland, Dangers Still Loom,” Economix Blog.
  19. Morgan Kelly, “If You Thought the Bank Bailout Was Bad.”
  20. Jesse Drucker, “Google 2.4% Rate Shows How $60 Billion Lost to Tax Loopholes,” Bloomberg, October 21, 2010,
  21. Olive McCarthy, “A Values Perspective of the Irish Credit Union Movement,” Journal of Co-operative Studies 35, no. 2 (105) 2002, Society for Co-operative Studies, UK:128-40.
2011, Volume 62, Issue 10 (March)
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