All European nations have had to deal with significant financial woes from the economic tsunami. It has been a rough time for almost everyone, but Ireland seemed to be hit the hardest. Their banking systems were one of the first to declare recession. Green country has been well known for their agriculture contributions being the biggest part of their economy, but in the last 20 years they have tried to transform into an industry country with service and high tech sectors.
Between the years 1995 and 2000 it was considered the 'golden' years of the Irish economy. These same years were also called the 'Celtic Tiger' years due to its continual and robust growth around the economy. The property rates in Dublin grew by 500% thanks to foreign capital and companies pouring into the country. Unfortunately the real estate bubble predictions were ignored, which gave everyone a false sense of their well being.
During this time it left people trying to snatch up as much real estate as they could during the growth sector. The only problem was the expert's suggestions that the market would correct itself to around 40 to 50%, the warnings were disregarded. Even worse was that investors were willing to put down their own money and even borrow funds. The lenders were too willing to oblige and while the economy was overheating, the government just sat back and watched it happen.
What led to the banking crisis in the country? It's easy to point fingers at everyone, but the main three culprits were; Anglo Irish, Bank of Ireland, and the Allied Irish Bank (AIB). Add in a corrupt media and the lack of concern from the government and everything seemed to be swept under the table. During this time even the financial regulatory board chose to turn a blind eye.
Do you know who or what started the fire? Let's just say there were plenty of seeds that told us this was going to happen. One of the major problems was the ruling party and financial governing body thought it would was in everyone's best interests to ignore them. So instead of resolving the situation then, the development capital was raised by the interbank market. In most cases it was offered on a 3 month basis, but borrowers could take 2 or 3 years to repay it. This meant that most of the money was on paper while the retail borrowers, businesses, and financial establishments were using the real 'green'.
Throughout the economic boom everything was look 'peachy' for the banking system, but once the world interbank market was frozen things began to unravel. Once the Irish real estate sector finally collapsed the crisis hit the Irish shores. All of the sudden we saw the liquidity of the banks evaporate and by 2007 when the bubble burst the Irish banking sector could barely stand on its own two feet. The day to day operations were extremely difficult to finance, but the regulatory board was still in no mood to do anything about it. Eventually the government had to jump in and take over.
They tried producing a stimulus package, but it never offered the type of benefit everyone wanted to see. Retail customers could no longer be counted on to replenish their corporate borrowing, which meant the Irish couldn't afford anymore indulgences. After all, the majority of their paychecks were coming from the real estate sector. The debt per household rose to 190% of the payroll income over this time period.
Corporate companies had diverted 28% of their lending capacity to real estate companies throughout this time period. They were left with an oversupply of land and hardly any demand for it at all. The banks figured out that recovering their debts would virtually impossible when it came to commercial borrowers. They could have flexed their muscles a bit and foreclosed on the properties, but this would provide even more panic since it would only accentuate the economic crisis.
The impact of the banking crisis on the economy There was no stopping the recession that finally hit in Ireland. The banking crisis and poor economic performance of the EU countries took its toll on Ireland. By 2009 the growth rate went from 4% to a whopping 1.7%. By the time the recession hit the growth rate had reached -7.1%. In 2010 we did see a few sparkles along the way, but the spike was only marginal (.3%). By the end of the 2nd quarter it was at -1.2% for the first 6 months.
What was done about it? Despite the announcement of government aid and stimulus packages backed by the Irish states commitment to safeguard the banking system, the share value of the three banks in question plunged. Soon, the policy makers realized that recapitalization would simply not be enough, so in December 2008 it was decided that the Government would take preference shares worth 1.5 billion euro in the Anglo Irish bank, giving them the controlling stakes. The nationalization of Anglo Irish further pulled down the stock value of the other banks. Finally, in 2009 it was announced that the government would appoint 25% of the directors in these banks in return for two 3.5 billion euro stimulus packages.
The only thing the banks decided was being able to increase mortgage lending to 1st time buyers by 30%. Mid-sized businesses also saw an increase in loans by 10% as part of the deal as well. Plus there was a 12 month grace period offered to home loan borrowers. This would allow them some time to get back on track before repossession of the property would take place.
What does the future look like? The National Recovery plan surfaced in 2011 to help get public finances and the national deficit under control. Whether or not it works remains to be seen, but the goal is to reach 3% by 2015 and make a budget adjustment of 15 billion euro over the four year time frame. It's possible that this will allow the Irish economy to grow by 3% this year alone. Unfortunately we have to wait and see whether or not it will all pan out. The good news is; they've seen their biggest output in the industrial area most recently.
Between the years 1995 and 2000 it was considered the 'golden' years of the Irish economy. These same years were also called the 'Celtic Tiger' years due to its continual and robust growth around the economy. The property rates in Dublin grew by 500% thanks to foreign capital and companies pouring into the country. Unfortunately the real estate bubble predictions were ignored, which gave everyone a false sense of their well being.
During this time it left people trying to snatch up as much real estate as they could during the growth sector. The only problem was the expert's suggestions that the market would correct itself to around 40 to 50%, the warnings were disregarded. Even worse was that investors were willing to put down their own money and even borrow funds. The lenders were too willing to oblige and while the economy was overheating, the government just sat back and watched it happen.
What led to the banking crisis in the country? It's easy to point fingers at everyone, but the main three culprits were; Anglo Irish, Bank of Ireland, and the Allied Irish Bank (AIB). Add in a corrupt media and the lack of concern from the government and everything seemed to be swept under the table. During this time even the financial regulatory board chose to turn a blind eye.
Do you know who or what started the fire? Let's just say there were plenty of seeds that told us this was going to happen. One of the major problems was the ruling party and financial governing body thought it would was in everyone's best interests to ignore them. So instead of resolving the situation then, the development capital was raised by the interbank market. In most cases it was offered on a 3 month basis, but borrowers could take 2 or 3 years to repay it. This meant that most of the money was on paper while the retail borrowers, businesses, and financial establishments were using the real 'green'.
Throughout the economic boom everything was look 'peachy' for the banking system, but once the world interbank market was frozen things began to unravel. Once the Irish real estate sector finally collapsed the crisis hit the Irish shores. All of the sudden we saw the liquidity of the banks evaporate and by 2007 when the bubble burst the Irish banking sector could barely stand on its own two feet. The day to day operations were extremely difficult to finance, but the regulatory board was still in no mood to do anything about it. Eventually the government had to jump in and take over.
They tried producing a stimulus package, but it never offered the type of benefit everyone wanted to see. Retail customers could no longer be counted on to replenish their corporate borrowing, which meant the Irish couldn't afford anymore indulgences. After all, the majority of their paychecks were coming from the real estate sector. The debt per household rose to 190% of the payroll income over this time period.
Corporate companies had diverted 28% of their lending capacity to real estate companies throughout this time period. They were left with an oversupply of land and hardly any demand for it at all. The banks figured out that recovering their debts would virtually impossible when it came to commercial borrowers. They could have flexed their muscles a bit and foreclosed on the properties, but this would provide even more panic since it would only accentuate the economic crisis.
The impact of the banking crisis on the economy There was no stopping the recession that finally hit in Ireland. The banking crisis and poor economic performance of the EU countries took its toll on Ireland. By 2009 the growth rate went from 4% to a whopping 1.7%. By the time the recession hit the growth rate had reached -7.1%. In 2010 we did see a few sparkles along the way, but the spike was only marginal (.3%). By the end of the 2nd quarter it was at -1.2% for the first 6 months.
What was done about it? Despite the announcement of government aid and stimulus packages backed by the Irish states commitment to safeguard the banking system, the share value of the three banks in question plunged. Soon, the policy makers realized that recapitalization would simply not be enough, so in December 2008 it was decided that the Government would take preference shares worth 1.5 billion euro in the Anglo Irish bank, giving them the controlling stakes. The nationalization of Anglo Irish further pulled down the stock value of the other banks. Finally, in 2009 it was announced that the government would appoint 25% of the directors in these banks in return for two 3.5 billion euro stimulus packages.
The only thing the banks decided was being able to increase mortgage lending to 1st time buyers by 30%. Mid-sized businesses also saw an increase in loans by 10% as part of the deal as well. Plus there was a 12 month grace period offered to home loan borrowers. This would allow them some time to get back on track before repossession of the property would take place.
What does the future look like? The National Recovery plan surfaced in 2011 to help get public finances and the national deficit under control. Whether or not it works remains to be seen, but the goal is to reach 3% by 2015 and make a budget adjustment of 15 billion euro over the four year time frame. It's possible that this will allow the Irish economy to grow by 3% this year alone. Unfortunately we have to wait and see whether or not it will all pan out. The good news is; they've seen their biggest output in the industrial area most recently.
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