The Irish Financial Crisis Was Both Predictable and Preventable, to What Extent Do You Agree with This Statement?

“The Irish Financial Crisis was both predictable and preventable” To what extent do you agree with this statement? Use some financial indicators where appropriate to support your answer.

In the history of modern Europe the financial crisis in Ireland was one of the most tragedic and devastating. In order to prevent economical disasters like this it is very important to know was the Irish crisis both predictable and preventable. In this essay I atempt to defend the view that Irish government and Banks can predict and prevent the crisis. In order to demonstrate this I’ll first give you a brief overview of the recent history of how this collapse occurs. Secondly i will talk about the actions of the Irish government and banks. Thirdly the role of European Central Bank in the Irish financial crisis will be shown.

Traditionally Ireland was rather poor country, but in the beginning of 2007 became one of the richest and welfare country in Europe.  According to Kelly (2010) since 1990 to 2007 GNP and employment quadrupled. How does it happened that the country was such poor start to perform so well? People start to call Ireland “The Celtic tiger’’ because of its fast economic growth. And how the whole country became a bankrupt so quickly with unemployment rate more than 14 percent and Budget deficit 32 percent?

The interest rate was to small and the Central Bank of Ireland can’t control it because of joining the European Union. Kelly (2006) writes that Irish politicians try to make the whole nation belive that it is nothing to worry about and that Irish housing market can have a ‘’soft landing’’ but the price for the property cant increase forever.

Some experts may claim that Irish government was not understanding what happening and doing nothing to save the banking system. However, there is an inconsistency with this argument because in the middle of 2007 the construction industry has more than 17 percent of vacant houses that nobody wants to by. In September 2008 prices began to fall down and Irish government made a desperate decision in order to save the banks that gave too much loans to house developers. “It guaranteed  all deposits in six Irish banks” …’’nationalized  Anglo Irish Bank and then created a National Asset Management Agency to buy loans from banks’’.(Kelly 2010,p 4)

However, the unwise decisions of Irish government are not the only reason of collapse. Heath (2010) argues that Ireland ended so badly because of Ireland membership in EU and extraordinary low interest rate. He shows that the European Central Bank’s interest rate was only 2.25 percent which is too low for Ireland. The interest rate for Ireland should be at least 8 or 9 реrcent to slow down the prices and decrease loans but instead of this “Companies and consumers were being paid to borrow” (Heath, 2010 p13)