By Brian Lenihan, TD.  Minister for Finance.

This paper was delivered at the MacGill Summer School in July 2009 and published in: IRELAND’S ECONOMIC CRISIS-TIME TO ACT

Download it here: The Plan for Recovery (pdf)

Causes Of The Crisis

If you look at what international commentators are saying, many are suggesting that the Celtic Tiger model has failed; the model is no longer sustainable in the Ireland of today. But in fact if you look at what happened in the 1990s, we saw huge export-led growth right up to the year 2000. That was the era that saw an alignment of our living standards with those of other European countries. Those exports are still there and still being made.

Our problems emerged due to over-dependence on house building. New house building as a share of national wealth grew dramatically. Up to 2002, growth met capacity but after 2002 growth in house supply led to a radical deterioration. That over-dependence on construction was caused by a number of factors. Naturally and understandably the Opposition will hold the Government to account for that. But I did not see the Opposition parties at the time hold the Government to account for this at all. Hindsight is a wonderful thing. It is clear that the Government should have taken far more steps to correct that housing bubble. But no alternative was propounded on the other side of the benches in Leinster House.

It is very clear that the fundamental problem we have been facing since the turn of the millennium, is a loss in competitiveness. Some of that can be accounted for by the fact that we are in a strong exchange rate area. But it is also due to excessive costs of labour, of public services and of sheltered sectors overcharging for goods and services. I am not certain that anybody in public life, Government or opposition, could have dealt with that competitiveness issue because we all know the sheer scale of the growth we saw in Ireland from the mid 90s on.  If you have phenomenal growth year on year it is very difficult to prick that bubble, to get a soft landing or persuade people that competitiveness should transcend all other considerations. We have to create the Ireland of our dreams in terms of public services, health, education and welfare,  but this all has to be paid for and it can only be paid for through the strength of the productive economy. That productive economy can only flourish if it’s competitive in the wider world.  We cannot expect the rest of the world to owe us a living. That is what independence meant in the 1920s as much as it means now.

During the years from 2003 to 2007, there were substantial benefits from what the Government did.  There were social welfare increases of 7 to 10 per cent every year.  There was huge spending on education.  Spending per student rose by more than one-third at primary and secondary levels.  Spending on health increased by 80 per cent. The numbers employed in the health sector rose by 15 per cent.  Public sector wages rose 6 per cent every year. Capital expenditure of €31 billion took place during the boom years.  We all know what was done, what is going on and still to be completed in terms of our national motorway networks.  Income tax cuts of €3.5 billion were made and a Pension Reserve Fund of €21 billion was built up.

The Plan for Recovery (pdf)
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