From high mortgage rates to shortages that have spread coast to coast, New York Times reporter Emily Badger explains the roots -- and consequences of our country's broken housing system.
After 800 years of economic and cultural poverty, Ireland emerged in the 1990s as the fastest-growing country in Europe. Then the “Celtic Tiger” boom veered into a housing and credit bubble even bigger than that of the United States. Today, Ireland’s massive debt is stirring fears of a another bailout from the European Union. Guest host Susan Page and her guests discuss how Ireland’s woes are affecting Europe’s economy and what the U.S. can learn from its experience.
- David Lynch Senior writer with Bloomberg News and author of "When the Luck of the Irish Ran Out: The World's Most Resilient Country and Its Struggle to Rise Again."
- Uri Dadush Senior associate and director in Carnegie’s International Economics Program, former director of international trade and former director of economic policy at the World Bank.
- Lara Marlowe U.S. correspondent for "The Irish Times"
MS. SUSAN PAGEThanks for joining us. I'm Susan Page of USA Today, sitting in for Diane Rehm. As European Union finance ministers gather today for their monthly meeting in Brussels, Ireland's debt crisis tops their agenda. While the Irish and government insist that it has no immediate need for cash, some analysts worry that Ireland may follow the example of Greece and drag other Eurozone countries into a financial crisis. Joining me to discuss Ireland's situation and how it may affect the global economy, David Lynch with Bloomberg News and Uri Dadush of the Carnegie Endowment for International Peace. Welcome to "The Diane Rehm Show."
MR. DAVID LYNCHThanks, Susan.
MR. URI DADUSHThank you.
PAGELater in this hour, we'll have our listeners join our conversation. You can call our toll-free number, 1-800-433-8850. Or send us an e-mail at email@example.com. Or you can always find us on Facebook or Twitter. Well, first off, joining us by phone is Lara Marlowe. She's a correspondent with The Irish Times, and she's calling from here in D.C. Lara, welcome to "The Diane Rehm Show."
MS. LARA MARLOWEThank you, Susan.
PAGESo tell us the latest. What's happening today in Brussels?
MARLOWEThere's a meeting starting in 55 minutes from now in Brussels, and it will really decide the fate of the Irish economy. As you mentioned, the European finance ministers are pressuring Ireland to accept a bailout. For the Irish, it's a question of national pride, and they're very much afraid that it will harm their foreign direct investments if they take a bailout. But they're also worried about the conditions that would be attached to it. So the expectation is that some sort of cosmetic formula will come out of this meeting whereby the European Central Bank will continue to fund Irish banks.
MARLOWEIrish banks, at the moment, are receiving a quarter of all of the loans being given by the European Central Bank. And the Irish are hoping desperately that the combination of whatever formula comes out of this afternoon's meeting, plus their four-year plan which they're going to announce at the beginning of next week, will somehow quieten the markets, calm people down and just take the pressure off of them for -- at least for a while.
PAGESo the -- there's a lot of resistance to the idea of seeking and accepting a bailout. But what are the consequences of not getting a bailout and having things not get better as the Irish officials hope?
MARLOWEWell, de facto, they've already got a bailout. Like I said, they are getting a quarter of all the loans given by the European Central Bank. There are European Central Bank officials now in Dublin sort of watching over what the Irish are doing and watching their policymaking. So it's really a question of presentation. But the consequences, as I said, would be -- the fear is that foreign direct investors will be scared away. Ireland receives something like -- 60 percent of its economy is dependent on foreign direct investments -- 60 percent of the Irish gross domestic product -- and that's compared to only 20 percent on the average in the EU.
MARLOWEAnd so they're really afraid that if they formally default on their debt, which is enormous, that -- and if they lose their low corporate tax, which is 12.5 percent, that they'll scare away all their foreign direct investors. And plus the government, which is very much embattled, is trying to save face as well.
PAGESo you said that you expect a four-year plan presented next week by the government. How -- what kind of austerity measures is that four-year plan likely to include?
MARLOWEWell, basically huge cutbacks in public services. The government has said there won't be -- they're going to go easy on the tax increases. People have already -- civil servants have accepted 10 to 15 percent pay cuts in the last two years. The government has already cut 15 billion euro from its budget since the crisis started two years ago, and they're set to cut another 15 billion. And as David Lynch points out -- you know, who's just written his book on the Irish economy -- that's the equivalent of the U.S. dismantling half of the Pentagon. I mean, these are enormous cutbacks, and it's going to affect every facet of Irish life. It will affect the health service, education, transportation. Everything that Ireland does is going to be affected.
PAGEAnd, Lara, just one last question. So what's the mood of the public in Ireland? Are people very concerned, I assume? Are they still supportive of the government? What's the mood on the street?
MARLOWEWell, the government is very unpopular. I think it's probably, you know, record unpopular. It's being slammed in all the newspaper editorials for lying, basically, about how dire things were, for not telling the truth and not being straightforward with people. Unemployment is about 14 percent, so everyone knows -- it's a very small country, obviously -- everyone knows someone who's lost their job. There's huge mass emigration on the scale that hasn't been seen since the 1980s, which is a national tragedy for Ireland, all the young and bright college-educated people leaving.
MARLOWESo the mood is very, very, grim. There's a photograph that's been seen in a lot of U.S. newspapers this week of a jewelry store in central Dublin with a huge sign saying, going out of business after 49 years. And, you know, that's the sort of thing that's happening. In the village where I have a house just outside Dublin, the main hotel has shut down, several restaurants, several shops. And it's really quite depressing to walk around and see all these boarded-up buildings.
PAGEAll right. Lara Marlowe, a reporter with The Irish Times, thanks so much for being with us.
MARLOWEIt's a pleasure.
PAGENow, Lara mentioned David Lynch's new book. It's called "When the Luck of the Irish Ran Out: The World's Most Resilient Country and Its Struggle to Rise Again." That title may tell the story. David Lynch, how did Ireland get into this mess?
LYNCHWell, it's been an extraordinary rollercoaster over the past quarter century. And the despair and bleak conditions today are reminiscent of where the story starts back in the 1980s. But in a nutshell, Ireland came through a period in the 1980s that was really quite terrible -- high unemployment, high immigration, sky-high debt. They got their public finances cleared up. They devalued the currency a couple of times, worked out an agreement between business labor and the government to get some predictability so that they could attract these waves of foreign direct investment -- much of it from the United States -- companies like Intel, Gateway, Microsoft, Citigroup.
LYNCHAnd by the mid-'90s, it was almost a different country. It was dubbed the Celtic Tiger. The economy was roaring along, growing 8, 9, 10 percent a year. The culture that had been sort of stagnant and almost neo-theocratic in the '80s came to life. You had artists like U2 and Riverdance and Seamus Heaney going on the world stage. And then, ultimately, even a peace deal in the north that seemed to really heal the historic breach on the island. So by the late '90s, by the year 2000, Ireland was enjoying the best days in its modern history.
PAGEAnd then what happened?
LYNCHWell, then as any fatalistic Irishman or woman would tell you, things reverted to form, and the Irish promptly drove things into the ditch. Housing and credit bubble that was even larger than what we suffered here in the United States -- reckless banks, complicit political class, weak or blind regulators. And now they have driven themselves into a recession that's even more punishing than ours and may take longer to get out of.
PAGESo, Uri Dadush, let's talk about the EU finance ministers meeting today. What do you think will happen?
DADUSHI think, inevitably, there will be some form of a bailout. And it will take -- it has to take the form of loans directly to the Irish government because that is the only way that the financial mechanisms that are being put in place can operate. The understanding will be that a part -- a significant part of this loan will go to recapitalize the banking system in Ireland, which is at the heart of the problem. But together with that are going to come some very, very tough conditions. Now, Ireland is already undertaking major adjustment, as Lara has just pointed out. But one of the things that may be associated with the bailout package is a condition that Ireland normalizes and invests in inverted commerce, the corporate tax rate, which is...
PAGENormalize by meaning raise it.
DADUSHMeaning raise it to -- closer to the European averages. Right now, it's 12.5 percent. Many European countries -- and they're all competing for foreign direct investment -- have corporate tax rates which are much higher than that -- 25, 30 percent. And these are some of the concerns that are going to be in the minds of the Irish negotiators as they go into this unprecedented phase of negotiating with the IMF and the European Union on how, from now on, the Irish economy will be managed.
PAGENow, clearly, Irish officials have been very resistant. First, they were denying they were in talks for bailout. This morning they are playing down reports that they are talking about a bailout. Do they have the option of avoiding a bailout? Or at this point, do you think that die is cast?
DADUSHI, frankly, think it's pretty much cast. The -- as Lara pointed out, there is already a bailout of Ireland because the European Central Bank is underpinning the banking system in Ireland with massive liquidity injections, amounting to something like 80 percent of GDP. So this is already occurring. It is very difficult to see how you get out of a debt trap of the type that Ireland is in at the moment. The interest rate that they're paying is so high relative to the fact that the economy is not growing, that even if nothing else happens, even if they manage to balance their budget except for interest, nevertheless their debt is rising at a very rapid rate. So that's unsustainable.
PAGEAnd a blow to national pride if this is what happens (word?).
LYNCHAbsolutely. And the irony here is that back in the '80s, one of the things that motivated the Irish finally to get their act together and dig their way out of the historic jam they were in then, was precisely this fear that the IMF would come in and impose a settlement on Ireland, and that would then render the entire project of Irish independence moot, that you would have failed as an independent state. After all those struggles to get away from the colonial masters in Britain, you'd be subject to masters at the IMF.
PAGEWe're going to take a short break. When we come back, we'll talk about the implications of this crisis in Ireland for other countries in Europe and even for the U.S. economy. And we'll take your calls and questions, 1-800-433-8850. Our lines are open. Stay with us.
PAGEWelcome back. I'm Susan Page of USA Today, sitting in for Diane Rehm. With me in the studio, Uri Dadush, a senior associate at Carnegie's Endowment for International Peace, he's a former director of economic policy at the World Bank. And David Lynch, a senior writer with Bloomberg News, he's the author of a new book "When the Luck of the Irish Ran Out." We're going to be taking some of your calls shortly. Our phone lines are open, 1-800-433-8850, if you'd like to join our conversation. Here's an e-mail from Jonathan in Washington, D.C., who asked, "How much of a potential domino is Ireland in the EU and the world? To what degree could the situation in Ireland be contagious for other countries in Europe?" Uri.
DADUSHWell, it is already contagious. Of course, at the start of this crisis, it was Greece that kicked us off about a year ago, and now Ireland is in deep trouble. And Portugal is another small country that is very much in the crosshairs of the market today. There's a long history of these types of financial crisis picking, one by one, the next weakest, so to speak. So right now the next weakest is viewed to be Portugal. But behind the scenes for the time being is the greater worry, the far greater worry that Spain, and possibly Italy, will be affected. So this is much more important than -- difficult as the Irish situation is -- much more important than Ireland itself.
PAGEIreland and Portugal, rather small countries, small economies -- it spreads to Spain and Italy, a much more serious situation.
LYNCHYeah, well, Spain is 10 times the size of Ireland, and that's one of the concerns, that the EU has been struggling to get ahead of this crisis for the better part of a year now. The political response has seemed, to people in the markets anyway, to be a little slow and perennially late. And even the establishment of the stabilization fund that the EU and the IMF set up in May doesn't seem to have fully erected a wall against the coming flood. And so now the question is, is the bailout going to be just for Ireland, Ireland and Portugal? And if so, will that be enough to stop the problem?
PAGEAnd what is the attitude of the countries in the EU on the other side, the ones who are financing these bailouts, like Germany?
DADUSHWell, Germany, of course, has -- let's call it -- very mixed feelings...
DADUSH...to use an understatement…
LYNCHYou're being polite.
DADUSH…about the situation. And, frankly, the difficulties that Germany has had in grappling with the crisis in Greece and now in Ireland and in other places politically greatly complicates the problem. One of the important triggers of the Irish problem in the last several weeks is a proposal that has been pushed very hard by Germany to establish what's called a sovereign debt resolution mechanism, which means that there will be an orderly mechanism for sovereign countries not to repay their debts in full and for private creditors to take a hit.
DADUSHThis really set -- this proposal really set the cat among the pigeons, despite the fact that it is meant to only start to operate from the middle of 2013, meaning that existing debt is sort of grandfathered from this mechanism. Nevertheless, the prospect that countries within the European Monetary System within the Euro area may actually not repay their debt in full, has greatly unsettled the markets.
PAGEIs there -- are there possible repercussions here in the United States, David, from the situation in Ireland?
LYNCHWell, I think there's certainly relevance to the United States. And it's in terms of the debate that we're having here over balancing our budget or reducing our deficit because the Irish have really been ahead of the curve in pursuing austerity for going on two years now. This isn't like the Greece -- the Greek case where the Greece sort of overspent right up until the moment when the bailout check arrived. The Irish have taken a number of very tough budget cuts. Lara referred to some of them -- public salaries down 10 to 15 percent, pensions cut, health care cut. The health minister just had a bucket of red paint thrown on her at a public appearance last week, I think it was. So that sort of indicates what's going on.
LYNCHAnd so Ireland has been doing everything that the market might ask of it, in terms of getting its house in order. They've cut up the credit cards. They've cut off the cable TV. They're not going out to dinner anymore. And basically, the market says, thank you very much. We want more, and we don't think you're going to stick to this. And so it illustrates this tension between austerity and growth because the Irish have cut, cut and cut, but the economy is not growing. And if doesn't grow, it's going to be very hard to get out of debt.
PAGESo we've mentioned the Greek crisis that came first. What are the lessons, Uri, that the world has learned from the way that crisis got handled?
DADUSHWell, there are many issues there, but, first of all, the crisis should have been handled more promptly. There should have been a quicker reaction on the part of the European partners. But then there are very important lessons that have to do with the way the whole European monetary union is managed, which is a lesson for Europe. And one of the errors was to assume that the boom that immediately followed the entry into the European Monetary System of -- sorry, the adoption of the euro, that the boom that followed was actually, let's say, a sustainable kind of situation.
DADUSHIn fact, what it led to was a very large loss of competitiveness in the countries that were sort of seen as being relatively backward compared to the European core, and very large increases in current account deficits within Europe and current account surpluses within Europe, which also reflected, in many cases, unsustainable spending -- including in the case of Ireland, as David's beautiful book points out. In the case of Ireland, that overspending took the form of a gigantic building boom.
DADUSHNow, we understand that these situations were not sustainable. They did not reflect economic realities, that governments became far too overextended because they thought that all this beautiful revenue that was coming in that reflected the building boom that was unsustainable was going to stick around. Well, it's not. So these are some of the lessons that are being learned. And a whole new institutional mechanism is going to have to be put in place within Europe to ensure that we do not have a repeat of this crisis, even if we manage to deal with the current one.
PAGEDavid, what do you think?
LYNCHWell, you know, there's an interesting aspect to this in the Irish case as well, and it boils down to the difference between reality and mirage because Ireland, for most of this decade, was running budget surpluses. So the Irish, five years ago, were not like the Greeks. They were in no position -- you couldn't criticize the Irish and say, you're overspending, because the Irish government could rightly point to its budget and say, hey, look, we've got a surplus. We're doing the right thing.
LYNCHBut what had happened over the years was, as Ireland pursued this very market-friendly policy and concentrated on reducing income taxes, they were able to do that by virtue of the enormous flood of transactional tax revenue. Every time you bought and sold a house, there was a tax on that. And that became a river of money that -- to mix metaphors -- the government grew addicted to, and so it sort of thought it was running a surplus. But once the housing boom evaporated, all that transactional tax revenue disappeared. And so now you're down with -- you're left with the income tax revenue that you have, but you've cut income taxes so much, you don't have enough income tax revenue to really support the government.
PAGEI wonder if one of the hard lessons of Greece is that once you're all using the euro across Europe, you're really dependent on one another. One economy affects the other in ways that maybe -- did Europeans realize that when they embarked on the euro, how much their economic fortunes would be tied to everyone else in the system?
DADUSHI think a lot of people in Europe were very concerned that the institutional framework could -- underpinning the Euro was inadequate. But this fear had to confront the politics of undertaking the necessary reforms. And the necessary reforms would have been very, very difficult and painful ones in the current European context. What are those reforms? Well, you would have had to have for a start a much bigger European safety net, some pooling of fiscal revenue.
DADUSHSome people call it a fiscal union to a degree of the type that you have in the United States. Well, states were simply -- politically -- nations with politically, completely unprepared -- and even today continue to be completely unprepared to take that historic step. That's one reform they would have had to do. And the other is, again, comparing Europe to the United States is to have much more flexible labor markets so that -- and product markets for that matter -- so that when a shock occurs in one part of Europe, you know, wages can adjust.
DADUSHThe employment can adjust. Firms can reposition quickly to take advantage of new opportunities. And, in a sense, that is what you have in the United States, is that kind of flexibility. It simply does not exist in Europe, which means that every time that a country within the Euro area is hit with a shock, they really have very few mechanisms for adjustment. They've lost the potential to devalue the currency. They don't have the labor market flexibility, and they cannot appeal to a higher authority to get some support, like California can, for example.
LYNCHWell, again, it's interesting. In the Irish case, it's a bit of an outlier in this issue of the labor market flexibility because one of the striking changes over the period that I chronicle in "When the Luck of the Irish Ran Out" is that Ireland went from a place where everybody had to leave in the 1980s -- all the Irish college graduates left to get work 'cause you couldn't stay home -- to a place where, by the turn of the century in the first years of this decade, Irish government officials were going around Eastern Europe staging recruitment fairs to attract Polish plumbers and Czech carpenters and Ukrainian bartenders to come to Ireland to fill a labor shortage. That's how much things had changed. Well, a lot of those people who flooded into the country have now turned around and flooded right back out.
DADUSHYes. I just wanted to follow on to David to underscore what he says, that Ireland is a bit different in this regard, in that they did have the flexibility, and they did, by the way, manage, as he said, the fiscal accounts really quite well until the crisis exploded. But what makes Ireland unique and what explains the profound crisis that they're in is simply the enormous expansion of credit that occurred within Ireland and the sheer size of the building boom that occurred in Ireland. Just to give you a point of reference, at the peak, as in David's book -- at the peak, they built about 100,000 houses in Ireland in a year. This would be the equivalent in the United States of building seven million houses in a year, three times the top of the boom.
PAGESeems like a lot of houses.
DADUSHThat's a lot of houses (unintelligible).
PAGEI'm Susan Page, and you're listening to "The Diane Rehm Show." We're taking your calls. We'll go to the phones now. 1-800-433-8850. Let's go to Cincinnati. First, William's on the line. Hi, William.
WILLIAMHi. Good morning, Susan. You know, I was over there for the last month, and what struck me most -- and maybe David might elaborate on this and maybe on some sort of solutions, too -- is, you know, the political structures, I think, need to change a little. Like the -- I believe, you know, where there's -- whether it's Fianna Fail who are in power and the Greens and Fine Gael and Labour, a lot of these parties are too close. And they work together, and maybe there's been a lot of mismanagement, you know?
WILLIAMAnd someone, I believe, has to be responsible, and, you know, none of them go to jail for anything if they do anything. And I -- you know, if you're going to be cleaning up the place financially, I think the government of Europe maybe needs to look at the political structure and maybe look towards -- maybe looking at one island again because of -- the north are laying off 40,000 up there. And maybe the governments are too bloated on either side and start looking towards a unity government to make it more efficient. Thank you.
PAGEAll right. William, you sound like you have just a little a bit of an Irish accent yourself.
PAGEAre you from Ireland?
WILLIAMYes, I am. Yeah, I said I was over there for about the last month or so, and I was just looking and listening to the comments as I was traveling around. And, you know, there's enough -- a lot of frustration, and they can't believe it's happening all over again. And there's no one actually taking responsibility for it in government, and I think, you know, it's something that maybe David Lynch or your other guest might address.
PAGEAll right, William. Thanks very much for your call.
LYNCHYeah, a couple of points, in terms of people never getting punished for wrongdoing, that is a longstanding issue in Ireland. And the Irish writer, Fintan O'Toole, has talked of a culture of impunity over there, where -- whether it's for tax evasion or political corruption or whatever you can imagine, no one ever gets in trouble. And that does seem to grow out of some -- what, to an outsider, looks like very unusual structures in the Irish political system. I'll just mention two quickly. One is that because it's -- of the structure of the political representation, people at the local level, if they want a road paved or if they want a zoning change, they look to their representative in Parliament to get that done.
LYNCHAnd if he can deliver the goods -- it's a very transactional political culture -- if he can deliver the goods, get you to jump a line for -- a waiting line for a medical procedure or something, you'll support him, no matter how many bribes he's taken. And there are specific cases of -- one parliamentarian, Michael Lowry, after being exposed years ago for having accepted, effectively, a new house from a developer -- you would think that would end his career. Well, he's been returned to office three straight times since then with the highest vote total in the constituency -- sits in Parliament to this day.
LYNCHThe second thing, I think, that's distinctive about the Irish system is that, unlike the U.S. where if a guy or a gal walks into the room and says, I'm with the Democrats, or I'm with the Republicans, you have a fair bet -- you have a fair idea what they believe on a whole host of issues. In Ireland, you don't have that left-right split the way you do in just about every other European democracy because the political divide dates back to the Irish Civil War. That was the fundamental rupture between the two parties. So you can have a pro-business person in the Fianna Fail party, and he might agree on 99 percent of the issues with the guy in Fine Gael.
PAGEWe're talking with David Lynch. He's a senior writer with Bloomberg. His new book is called "When the Luck of the Irish Ran Out: The World's Most Resilient Country and Its Struggle to Rise Again." And we're also talking this hour with Uri Dadush from the Carnegie Endowment for International Peace, a former director of economic policy at the World Bank. We're going to take a short break. When we come back, we'll go back to the phones and take some of your calls and questions, and we'll read some of your e-mails. Stay with us.
PAGELet's go to the phones. We'll talk to Dave. He's calling us from Orlando, Fla. Dave, thanks for joining us on "The Diane Rehm Show." I'm sorry, we've lost Dave. Let's go to Ron who's calling us from Tallahassee. Ron, are you there?
PAGEGreat. You're on "The Diane Rehm Show." Thanks for calling.
RONThanks. Super show. Here's my quick question. Is any -- do you think anybody in Washington, D.C. is watching this, that's what's going on with Portugal and Spain and Greece and England and France? I mean, they seem to be clueless about this. Do you think they're really watching this and listening to what's going on? Thank you.
PAGEAll right, Ron, thanks for your call. What do you think, Dave?
LYNCHYeah, I'm sure people at Treasury and at the Fed are keeping a close eye on this. I suspect what the caller means -- and I don't want to put words in his mouth -- but I infer from what he says that he means, are they watching it in terms of, you know -- isn't this a wakeup call? Here are these heavily indebted countries that are now suffering all this pain. Isn't this in our future? And there are many people in the political world who believe that and who are worried about it, and that's animating some of the deficit discussion. Of course, one of the differences that a country like the United States has versus Ireland, for better or for worse, is we run a printing press.
PAGEHere's an e-mail from Marie in Ohio. She's one of several e-mailers who trying to draw lessons, I think, for the politics in the United States from what we seeing happening in Ireland and in Europe. And she writes, "During the presidential campaign, John McCain often cited the tax rate for business in Ireland as an example the United States should strive to attain for U.S. businesses. But look where Ireland is now -- higher unemployment than in the U.S. and close to bankruptcy. The lesson learned should be businesses must also pay their fair share in taxes. It does not follow that just because a company pays lower taxes, they will hire more people." What do you think of that, Uri?
DADUSHWell, I think there is a good argument that if businesses have a lower tax rate, then they will invest more, and Ireland has actually ridden that wave over many, many years, attracted a lot of foreign direct investment. At the same time, I think that it's also true that everybody has to pay their fair share. You know, if companies are not paying taxes, somebody else is going to have to pay taxes. But more importantly, I don't think it's the lower tax rate in Ireland for foreign direct investors, in particular, that explains, you know, the -- what happened in Ireland and was at the root of the crisis. At the root of the crisis -- as we have already discussed -- is an enormous credit boom and building boom that was unsustainable.
PAGEAnd here's an e-mail from someone who's in Dublin, writes, "Greetings from Dublin where I'm glad to report that the sky is not falling in. Yes, Ireland's crisis is primarily a banking crisis fueled by a property and consumer boom. Your listeners might be interested to know that one of the contributory factors to this banking crisis was the fact that German banks were prepared to loan billions of Euros to small Irish banks." Is that the case, David?
LYNCHI wouldn't point the fingers at -- point the finger at the Germans alone, but certainly German banks were part of it. I think that the broader picture is that over a good bit of this decade, you had a global ocean of capital moving around the world at a time of very low yields, low returns on investments, trying to find a way to make money. And the Irish banks were able to go out into the global wholesale markets, borrow that money, turn around and lend it on to any property developer with a hammer and a nail who'd promise to put up a housing development somewhere.
LYNCHAnd for several years, that was great. The government had loads of tax incentives that made putting up housing in the middle of nowhere, quite literally -- made it very lucrative. And like any other mania, it worked wonderfully right up until the moment when the music stopped, and then it didn't work anymore.
PAGELet's go to John. He's calling us from Boston. John, hi, thanks for joining us.
JOHNHello. I'm calling from Boston.
PAGEYes, welcome to the show.
JOHNCan you hear me all right? Thank you. First time caller here. I left Ireland in '85, and it's a sad story to hear that it's similar -- in fact, it's kind of worse. It's a little more embarrassing now because it's an international story. And it takes me back to hearing about the bombings in the north and all that, and all of a sudden Ireland is in the news for the wrong reason again. And it's great to hear David Lynch talk about stuff there, but he didn't mention the colonial corruption, you know, of Ireland and abuse of Ireland for all those years, which now is kind of turned inwards. You know, he talked about the civil war and stuff, and I'm familiar with that obviously. But the -- you know, some people colluded with the British, and some were -- wanted the British out of Ireland. It was never fully, fully resolved.
PAGEAll right, John. Thank...
JOHNAre you still there?
PAGEYes, we're still here. Did you have a question you wanted to pose?
JOHNWell, the question now, it kind of lead on from the corruption of, you know, corruption in the economy. There's a black economy there. And a lot of the immigrants did not go home, and they're signed on to get benefits and so forth. Wages in Ireland are four times higher than they were about a year ago, higher than even Poland. And Poland is not the lowest wages in Europe. I'm sure Mr. Lynch knows there are much lower wages than Polish wages. How can you have a country like -- can you imagine Mississippi earning, like, per hour, a quarter of what they make in Boston?
PAGEAll right, John. Thanks so much for your call. David?
LYNCHA lot to pick up on there. Quickly, in terms of the hangover from the colonial times, I do think there are a couple of distinctive features of the Irish boom and bust that bear noting. One is the central place that land played in all this and a real visceral desire to own land that goes back -- I think it has roots in the 19th century history of dispossession and eviction back during the time of the land wars. I also think there's this ethic of what the Irish themselves refer to as the cute hoor. And I want to spell that. It's H-O-O-R. And what the cute hoor means is a respect and admiration for someone who you see to get away with something.
LYNCHAnd that's, I think, also a bit of a hangover from the colonial times where rules and officialdom were de facto, illegitimate in the eyes of the populous. So breaking a rule really didn't mean anything because it was the oppressor's rule. It wasn't your own rule. The other thing I would say -- I was interested to hear John say that it was almost more embarrassing now because my sense is that what I think is really the most important factor in this extraordinary quarter century for Ireland is a total remaking of what it means to be Irish, a change in Irish identity.
LYNCHIf you took a picture of the Irish brand, if you would, in the 1980s, it was that of a people in a country that was facing the past -- that had more interest in the past than the future. And the immigrants who came over -- immigrants who came over here from Ireland, I think, in the 1980s were a little bit embarrassed. They were coming from a country that was something of a wreck. The finances were a wreck. The culture was under the influence of the Church so that you couldn't buy a condom in a store. You couldn't get a divorce. It was just a very bleak place, and -- but that all changed.
LYNCHAnd my sense is that even amid the current catastrophe -- which is what it is -- I mean, this is -- Ireland is now in a very difficult place, but they're not alone. I mean, the Greeks are there. The Portuguese are -- if not there -- right behind them and others. And it's at a time of global economic meltdown where, you know, certainly no one in the U.S. can point fingers or give lectures on economics to foreign countries anymore. So I would think that for this new post-Celtic Tiger generation, there would be less of that embarrassment, maybe more anger at what their country's elites have done in the past to which they've brought the country, but not a broader sense of embarrassment of the sort that John mentions.
PAGEHere is an e-mail. Uri, I wonder if you could respond to this listener. Here she writes, "The intervention of the World Bank, the EU administration and others, is in behalf of elite investor return and is inversed to the standard of living in the jurisdictions concerned. If enough governments let the wealthy jump rope go slack, we could take care of human need first." This person writes, "Many poor people and those in rural Ireland saw nothing from the boom anyway." What do you think?
DADUSHWell, the World Bank, by the way, is not involved in Ireland. It's -- the World Bank is operating exclusively in developing countries, relatively poor countries, but the International Monetary Fund will, I'm sure, be very heavily involved in a bailout of any kind. The question, whether the bailout helps the rich disproportionately or the poor, is a tough one. On the one hand, there is no question that an important part of the bailout is going to go to support the banks that have been very much at the center of this crisis and will, in some sense, support the shareholders. It should be borne in mind, however, that the bank shareholders have already taken a gigantic hit. So anybody who thinks that this is a good time for bank shareholders, obviously, you know, hasn't purchased any shares or equities of banks recently.
DADUSHThere have been enormous downgrades in the prices of these banks. As far as the poor are concerned, you know, Ireland already has a 13 -- or as Laura said -- a 14 percent rate of unemployment. It is almost arithmetic that unless there is a bailout, unless there is a solution to the debt problem, which will have to be supported from overseas, that the unemployment will escalate even further. And it would not be inconceivable for Irish unemployment to double if there was not a -- you know, a resolution of this problem. And so, therefore, the bailout actually will support the broader Irish population in its adjustment and not just support the shareholders of the banks.
PAGEBut, of course, this is a debate we hear in this country. After the bank bailout and other -- the auto bailout, at a time when some of these corporate interests do well, but Americans still have 9.6 percent unemployment -- lower than that in Ireland, to be sure, but high by American standards.
LYNCHYeah, what's really extraordinary about the Irish case is simply the scale of the financial bill the taxpayers have been presented. You know, in this country, the TARP program, $700 billion which, at the end of the day, the U.S. may even end up breaking even on -- although you can get an argument on that. But let's say they don't. Let's say every dime of it was, you know, thrown to the wind. The Irish banking bailout, by current estimates, is anywhere from six to 10 TARP programs, relative to the size of the economy.
LYNCHIt's extraordinary. If that was happening in the United States, there'd be, you know, blood in the streets, I think. And that's one of the striking features so far, is that while there have been some public protests and the level of anger among the populace certainly seems to have ratcheted up every time I've been there over the last two years, the public thus far is hanging together. I do think one of the questions going forward is, will the public stick with an additional four years of budget cuts on top of what they've already absorbed?
PAGEI'm Susan Page, and you're listening to "The Diane Rehm Show." We're taking your calls and reading your e-mails. Well, David, let me ask you the question you just posed. Will the Irish public stick with four years of really fierce austerity measures?
LYNCHYou know, I don't know. Thus far, they have. There have been -- you know, the government is certainly as unpopular as a government could get. But there -- I think part of the problem is there isn't yet articulated a very clear alternative. And even if the government were to call an early election, as has been rumored for early next year, you know, I'm not sure the opposition wants what would be a poison chalice. Because to preside, even if you were to follow absolutely perfect economic policies from now -- for -- 'til forever, you know baked into the cake are anywhere from four to seven years of very tough times.
PAGEUri, what do you think? Do you think the Irish public is prepared for this extended period of hard times?
DADUSHI don't think anybody is prepared for -- anybody, any public can be prepared for the depths of crisis that is confronting them and, frankly, the very grim prospects over the next year two or three years at least. However, you know, you have to ask an intelligent public -- and the Irish public is certainly a highly intelligent and educated public -- you have to ask, what is the alterative? You know, who is going to pay the bills? And there really is no good answer to that, so they may throw out the current government. And, you know, certainly that is a pattern that you see again and again in crisis. Governments, you know, stay awhile and then get -- lose all their political capital, gets run out. A new government is going to come in, a new administration. What are they going to do? They're going to pursue very, very similar policies.
PAGEIs it clear that the Eurozone survives all this? Or could you see a situation where the economic situation -- Ireland, Portugal then Spain -- could there be really a fundamental shaking of this Eurozone?
LYNCHUri might have a better answer than I. But I think, you know, the arguments in favor of the Eurozone remain -- particularly amid a crisis -- remain so strong that it's hard to see how these smaller countries could opt out. For instance, just to give you an example, if Greece or Ireland were to say, you know what, we're out, we're going to start -- we're going to return to our old currency. The first thing that would happen would be that currency would sink like a rock because no investor would want to touch it.
LYNCHThat would, overnight, take whatever that country's euro-denominated debt was and make it instantly larger. So the first thing that would happen by opting out of the Eurozone is you would double or triple your national debt. And somebody had said to me -- and I think only half in jest -- that the only country that could really leave the Eurozone would be Germany because the Deutsch mark would be a currency that some investors might actually want to hang onto, but I don't think that's going to happen either.
PAGEUri, what do you think?
DADUSHWell, I agree with David that leaving the Eurozone is the Armageddon scenario. Is it completely unthinkable? I say it is not unthinkable. I don't think it's going to happen. I am very aware that the European authorities within Ireland and Portugal, but also within Germany and France, will do everything in their power to avoid that outcome. I am very aware of that. Is it unthinkable today? No, it is not unthinkable. The moment -- the way it would work, very simply, is a country that is unwilling or unable to take more pain, more adjustment, leaves the Euro area and accepts the fact that it is defaulting on its foreign debts. And that sort of sequence is conceivable as happened, for example, in the case of Argentina.
PAGEUri Dadush from the Carnegie Endowment, David Lynch from Bloomberg News, thank you both for being with us this hour.
PAGEI'm Susan Page of USA Today, sitting in for Diane Rehm. Thanks for listening.
ANNOUNCER"The Diane Rehm Show" is produced by Sandra Pinkard, Nancy Robertson, Susan Nabors, Denise Couture and Monique Nazareth. The engineer is Tobey Schreiner. Dorie Anisman answers the phones. Visit drshow.org for audio archives, transcripts, podcasts and CD sales. Call 202-885-1200 for more information. Our e-mail address is firstname.lastname@example.org, and we're on Facebook and Twitter. This program comes to you from American University in Washington. This is NPR.
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