Fintan O’Toole: Has Ireland had a lost decade?

The Crash – 10 years on: Is Ireland a wiser and better-governed place than it was in the years of folly and frolic?

After the great fall of 2008, the word was that Ireland would experience a lost decade. In many ways that pessimism was justified. The 10 years since the bubble burst have been hard ones. For at least the first half of that period, survival – personal and national – was the best that could be hoped for. Large ambitions were put on hold.

A shocked numbness gave way to a grim kind of resilience. Hatches were battened down. But was the decade merely lost? Has anything been learned? Is Ireland a wiser and better-governed place than it was in the years of folly and frolic?

At the personal level, it seems that Irish people are at least somewhat chastened by the experience and somewhat less inclined to take risks. Household debt is a good marker of tolerance for risk.

It reached its height in the third quarter of 2008, when it stood at €203.7 billion. In the first quarter of 2017, it was just €142.7 billion – a decline of 30 per cent.


So it seems clear that Irish people in general have become more cautious as a result of the crash. In the boom years, prudence was a synonym for stupidity – the motto was to get in as deep as you can. Now, it seems, there is at least some reluctance to put the hand to the fire again.

Household debt

But how deep does this go? Is it a profound cultural shift or just a temporary reaction? There are two reasons to be cautious about our new-found caution. One is that Irish household debt levels are still very high by European standards: our debt-to-income ratios are about 50 per cent higher than the average in the euro zone. The other is that we still like buying stuff on credit.

The big picture of household debt mostly reflects the high level of mortgages here.

Even after years of austerity and low inflation, Irish people still accept as a matter of fact that they must pay through the nose for everything

The smaller picture, which may tell us more about individual day-to-day behaviour, is how we use credit cards. In August 2017, some 7 per cent of Irish credit cards exceeded their credit limit, while 36 per cent had balances of between 75 and 100 per cent of their credit limits. So, chastened – but not entirely.

And this in turn may reflect something that has not changed at all: even after years of austerity and low inflation, Irish people still accept as a matter of fact that they must pay through the nose for everything. Irish prices across a range of consumer goods and services are the second highest in the Europe Union and 125 per cent of the EU average. (Only Denmark is more expensive.)

According to the National Competitiveness Council, Ireland’s current price profile could be described as “high cost, rising slowly”. And this applies not just to consumer prices. Childcare costs are still among the most expensive in the world. The rate of Irish health insurance inflation fell steadily after 2012 and dropped below the euro zone average. But by March 2017, it was galloping off again: at 8.3 per cent, it was vastly above the euro area (2.3 per cent) and UK (3.8 per cent).

Public services

The weakness of public services means Irish people still assume they pay directly for things that come as part of the “social wage” in other European societies. This in turn means financial vulnerability of the kind revealed in the crash remains a fact of life, even for middle-class households.

Something else that has not changed is the ability of Irish professionals to charge extremely high fees for their services. After the crash of 2008, there was a great deal of talk about, for example, the need to reduce the power of the legal profession and bring its costs into line with other countries. But while legal fees fell in the immediate aftermath of 2008, they quickly recovered from the shock.

In the third quarter of 2016, legal fees in Ireland were 8.3 per cent higher than in the same period of 2012. The World Bank estimates that the total cost of contract enforcement in Ireland amounts to 26.9 per cent of a claim, compared with 22.1 per cent across the OECD. The same is broadly true for accountants and consultants.

Most importantly, there is little evidence of any fundamental shift in the very area that did so much to cause the crash – the dysfunctional housing market.

The national index of residential property prices is still 30.7 per cent lower than it was at its Celtic Tiger peak in 2007. But the trend is relentlessly in favour of a return to the extremely expensive (and for most people unaffordable) house prices of the boom years.

Residential property prices nationally increased by 52.1 per cent in the period 2013 to 2017. In Dublin, the increase has been an even more spectacular 67.9 per cent. And at the other end of the scale, there has been an appalling increase in homelessness, a condition that had engulfed over 2,000 families and 3,100 children by the end of October.


It might have been expected that a property-driven crash of the magnitude that Ireland experienced after 2008 would lead to a fundamental shift in the way society and government think about housing, to focus on shelter as a human need first and a commodity or investment a distant second. But this did not happen.

It couldn’t happen because the State’s biggest response to the crisis was to nationalise the vast bulk of property debt through Nama and through public ownership of the banks.

Whether this was the right policy or not can be endlessly debated but what is not in doubt is that it locked the State into the idea that high property prices are a good thing – and the higher the better.

As one of the largest property owners in the world through Nama, the State needed property price inflation. It did not have the much more socially desirable option of reshaping Ireland’s property culture to make cheap housing a political aim.

The survival of professional privilege and the reinflation of the property market are consequences of the general political approach to the management of the crisis. When Nama in its initial documents, published at the depth of the crisis, made provision for an astounding €2.6 billion in professional fees over 10 years, it was setting a clear benchmark.

The near doubling of consistent child poverty in the austerity years was a matter of choice

And it was also making an implicit statement about the way austerity would be handled so as not to disturb the distribution of privilege in Irish society. Suffering may have been universal, but austerity hit vulnerable children much harder than it hit those who could have taken more of the pain.

The near doubling of consistent child poverty in the austerity years was a matter of choice – a consequence of official determination that the emergency must not reshape Irish society in any significant way.

Nor did the legal, political and administrative systems change nearly as radically as might have been expected in a country where their failures had been so egregious.

The extraordinary impunity for white-collar crime that underpinned the gross ethical violations in Irish banking did not alter. Compared with other countries, there was very little personal criminal accountability.

The Oireachtas banking inquiry was toothless – it was established six years after the banking crash, reported eight years after and was legally barred from making adverse findings against individuals. The Central Bank inquiry into Irish Nationwide, which cost citizens €5.4 billion, began public hearings only last month.

It is therefore not at all surprising that as early as 2010, just after it had been bailed out and while citizens were still reeling from the awful consequences of having to fund proportionally the most expensive bank rescue in history, the entire Irish banking system embarked on a massive campaign of deception in which it wrongly removed tracker mortgages from at least 30,000 customers.

Personal price

Nor is it surprising that even in 2018, no one really believes anyone will pay a serious personal price for that scandal either.

This remarkable continuity is perhaps a testament to the way the existing political order weathered the storm. Enda Kenny came to power in 2011 on the back of public fury at Fianna Fáil’s mishandling of the crisis, promising a “democratic revolution”.

There were indeed a few innovations: legislation to protect whistleblowers, the experiment on deliberative democracy through the Citizens’ Convention, the establishment of the Fiscal Advisory Council, curtailment of the use of the parliamentary guillotine to prevent debate.

Parliamentary scrutiny of the budgetary process remains the weakest in the democratic world

But a revolution it was not. Voters baulked at proposals to give Oireachtas committees real investigative powers.

Local government reform was at best tepid. The Seanad, widely acknowledged to be unjustifiable in its current form, remains entirely unreformed. Ministers continue to evade accountability to the Dáil through blatant obfuscation. Parliamentary scrutiny of the budgetary process remains the weakest in the democratic world. Promises to create clear lines of responsibility and personal accountability in the civil service have not been kept.

And so we are left with the haunting question – could it all happen again? Probably not in the same way. Basic regulation for the banks is much stronger. The fear of a credit bubble will probably linger in the system for another generation.

But there is not much evidence that the other underlying weaknesses – high levels of household debt, an obsession with property as a monetary asset, low ethical standards in the banks, poor parliamentary scrutiny, and impunity for white collar crime – have been dealt with.

Until they are, Ireland will always be vulnerable to the crises it does not see coming.