'Ireland's current state reminds me of what Turkey had gone through on the eve of the 2001 crisis.'

We were in holiday whereas there they were worried about the future of Ireland. The crisis in Ireland continues with pace. Ireland has always been a country which was exemplified as a role model for successfully closing the welfare gap between developed countries and Irish economy. I am okay with being the 'Irish inside us'; despite all I will present the success of Ireland since mid 1980s with a figure. Is not this why good friends are here for?

The figure below shows the per capita income in Ireland between 1960 and 2007 as a ratio to per capita income of the USA. Until the middle of 1980s, the ratio has stood around 50 percent with small fluctuations. From that point on, Ireland grows rapidly and the prosperity gap between the USA and Ireland closes down rapidly.

The economy contracts

The 2008-2010 period is not demonstrated in the figure. Ireland's economy contracted in the said years. Does this change the outlook represented by the figure? No, it will just cause a slight downwards movement. You cannot undo in a couple of years the achievements over the last twenty five years.

So, let us now set aside the growth performance and focus on the moment: It is apparent that the current circumstances in Ireland are heart-rending. Banks are in deep trouble. One of the fundamental reasons to this is the rapid credit expansion observed before the global crisis (please assess the BRSA-CBRT debate again with this lens).

Funds were insufficient
Funds provided by the European Union was not sufficient to bailout banks. Additional means of finance is necessary. Irish Bank, known to be the most solid bank currently, suffers from withdrawal of €10 billion of deposits in a couple of months. It is apparent that the bleeding continues intensely. Bailout operations have pushed up public debt to 100 percent as a ratio to GDP. What is more, deposits of banks have state guarantee. In case this guarantee becomes operable, public debt will apparently increase further.

These are similar to what Turkey underwent on the eve of the 2001 crisis. Ireland can overcome this just as Turkey did back then. Of course this is not easy; but this is not impossible, either. To do this, Irish administrators must first say yes to an IMF-EU program. But unfortunately, such a decision is deemed by the public as the disregarding of independence. What can I say?

Figure: Per capita income in Ireland as a ratio to per capita income in the USA: 1960-2007 (%)

This commentary was published in Radikal daily on 21.11.2010