Ireland has often lagged behind political and cultural developments elsewhere in the West. It was thus hardly surprising if suggestions that ‘the end of Irish history’ was at hand only began to surface on the cusp of the new century. A peace agreement which called time on Europe’s most prolonged conflict since 1945 encouraged hopes that Northern Ireland would soon come to resemble Yorkshire and the Rhineland more closely than Lebanon or Bosnia. South of the border, decades of under-development appeared to have been overcome in the space of a few euphoric years. And if the two Irish states still lacked one of the defining features of modern European politics—a left–right divide with electoral preferences tightly linked to class position—might not that suggest that Ireland was ahead of the curve for once, anticipating the coming Americanization of Europe’s political life?

Since September 2008, the global crisis has doused such visions in the coldest of water. The southern state is in freefall, shedding jobs at a dizzying rate and forced to accept a humiliating ‘bail-out’ from the eu and the International Monetary Fund the terms of which are likely to exacerbate the slump. Recession has cruelly exposed the flaws of the ‘Celtic Tiger’ model and punctured the self-assurance of its political sponsors. The prospect of Tory–Lib Dem austerity, meanwhile, threatens a Northern Irish economy which is unusually dependent on state investment to maintain its standard of living. This in turn will place intense strain on the region’s power-sharing administration, testing the will of its reluctant coalition partners to remain locked in harness as they implement London’s cutbacks. This essay will explore the economic and political consequences of the crisis, North and South. If it is too early to assess the longer-term impact, it is already clear that Ireland’s eccentric historical path has a long way to travel before reaching its terminus.

For much of the past two decades, the Republic of Ireland found itself hailed as a crowning glory of neo-liberalism. Between 1993 and 2000, Irish gnp grew by an average of 9 per cent a year; unemployment—which had reached a peak of 17 per cent in the 1980s—had almost disappeared by the close of the century. A nation that had stood ignominiously on the economic sidelines during the trente glorieuses of its larger and richer neighbours suddenly vaulted past them all, even reaching the psychologically vital milestone of a per capita income higher than Great Britain’s. Foreign journalists rushed to praise the Irish economic miracle, which could handily be attributed to its willingness to don the golden straitjacket and embrace the logic of global capitalism. Neo-liberal pundits from Thomas Friedman to George Osborne urged the rest of Europe to ‘follow the leapin’ leprechaun’ down the road of low taxes, light regulation and flexible labour markets.footnote¹ After witnessing the transformation of Ireland from basket-case to economic paragon, who could possibly deny the validity of the formula?

The eu–imf package of December 2010 has hammered the final nail in that particular coffin. With unemployment standing at 13 per cent and gdp having registered the largest dips ever recorded—7 per cent in 2009 alone—the Republic has now been saddled with a punitive interest rate of 5.8 per cent on a multi-billion euro loan that will be immediately used to repay German, French and British banks. This burden stems from the Irish government’s decision in September 2008 to offer an unlimited guarantee of the liabilities accumulated by its putrid banking system—and the refusal of the major European states to consider imposing a loss on ‘senior bondholders’, i.e. the said banks. It will most likely prove impossible for the Irish state to meet its interest repayments, creating further instability for the Eurozone and negating the prospects of an Irish recovery.

The terms of the deal cast an ironic light on one of the major themes of Irish political debate throughout the Celtic Tiger years. It was articulated most famously by Mary Harney—leader of the Thatcherite Progressive Democrats and veteran of the Fianna Fáil-led coalition which has held office since 1997—when she asserted that Ireland was ‘closer to Boston than Berlin’: more in tune with the Anglo-American economic model than with the welfarist leanings of continental Europe. Harney’s trite slogan was adopted by the Irish commentariat, with the value sign reversed by those on the liberal left who assumed that the eu would represent a more humane and progressive form of capitalism. Now Boston and Berlin have come to town, marching in step, and there is little to choose between them. Indeed, the imf has shown itself to be somewhat more enlightened than the eu, if only because it does not consider it imperative to defend the interests of European banking giants. It is a measure of the trauma that even the Irish Times felt compelled to distance itself in sub-Yeatsian style from the country’s new financial masters:

It may seem strange to some that the Irish Times would ask whether this is what the men of 1916 died for: a bailout from the German chancellor with a few shillings of sympathy from the British chancellor on the side . . . Having obtained our political independence from Britain to be the masters of our own affairs, we have now surrendered our sovereignty to the European Commission, the European Central Bank and the International Monetary Fund.footnote²

Explanations of this debacle must take as their starting-point the distinction between two phases of the ‘Celtic Tiger’. The first was driven by an unprecedented flow of investment from us multinationals into key manufacturing sectors, with exports as the main spur to economic growth. The second phase began after the us recession of 2001, with a new emphasis on construction and finance generating a property bubble with few parallels in modern economic history. The early decades of the Republic—as of the Free State which preceded it—had been characterized by import-substitution policies, which had reached the limit of their potential by the 1950s. With Seán Lemass as Taoiseach (1959–66), the dominant Fianna Fáil party threw the economy open and offered enticing tax breaks to foreign capital. But it was accession to the European Economic Community in 1973 that laid the foundations for the subsequent boom. Ireland became the recipient of growing waves of structural funding in the 1980s, while its big farmers reaped the benefits of the Common Agricultural Policy.