This myth is probably born from the understandable anger over the financial crisis that gripped Europe during the late naughties.
However, the reality is that a complex set of circumstances led to Ireland requesting international financial assistance from the EU and the IMF.
Ireland had become a victim of the global economic downturn that climaxed in 2008. Banks all around the world stopped lending to each other and credit dried up.
Irish banks had lent huge amounts, much of it to property developers, leaving our banking system exposed when funds could no longer be borrowed from the markets and the risks of non-repayment of the property loans made by the banks became suddenly larger.
During the bubble, the balance sheets of Irish domestic banks had grown through property lending to four times the Irish GDP, and so the scale of the Irish banking crisis was correspondingly larger than in other countries.
In Ireland the sovereign debt was compounded by a controversial blanket bank guarantee given by the Irish State to alleviate fears of mass deposit withdrawals and collapse.
In addition, the Irish State had become heavily dependent on property transfer taxes such as stamp duty, which disappeared with the bursting of the property bubble.
The increasing deficits and spiralling debt meant the financial markets lost confidence in the country’s ability to pay back what was owed, making it difficult for the State to borrow money at sustainable rates. The strain finally became too much in 2010 and in November of that year the Irish Government officially requested international financial assistance, a move backed by the ECB and the European Commission.
An €85 billion financial assistance package was put in place primarily to bail out the Irish banks, allowing them to restore their balance sheets and an economic adjustment programme for Ireland was formally agreed in December 2010.
Ireland successfully exited the three year programme on 15 December 2013 and over the following years Ireland’s economy grew with GDP growth increasing at rates well above EU averages. Unemployment has also fallen – from a high of around 16% in 2012 to 5.4% in March 2019.
The financial crisis was unprecedented but the EU has taken steps to ensure taxpayers never again have to bail out non-performing banks.
The Banking Union is making EU banks stronger and better supervised as well as providing improved protection for depositors.
The first two pillars of the banking union – the Single Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM) – are already in place and fully operational.
Under the SSM, the European Central Bank (ECB) is the central supervisor of financial institutions in the euro area and in non-euro EU countries that choose to join the SSM.
The SRM is designed to ensure an orderly resolution of failing banks with minimal costs for taxpayers and to the real economy.
If a bank fails, the SRM allows it to be managed effectively through a single resolution board and a single resolution fund that is financed by the banking sector
The European Commission has also proposed new rules that protect depositors' savings by guaranteeing deposits of up to €100,000.
- Publication date
- 6 April 2019