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Ireland's economic boom goes bust

Statues in memory of the Irish Famine of the 19th century stand outside the financial district in Dublin. Tens of thousands of Irish face difficult days as the country’s economy slides.

Associated Press

Statues in memory of the Irish Famine of the 19th century stand outside the financial district in Dublin. Tens of thousands of Irish face difficult days as the country’s economy slides.

DUBLIN, Ireland — Davey McKeever was down to his last bet slip of the night, crumpled in a sweaty fist, at the Shelbourne Park greyhound track. The remnants of McKeever's first unemployment check would rise or fall on the ironically named Nest Egg.

When the jet-black greyhound fell behind at the bend, the recently laid-off plasterer found it too painful to watch. He bowed his head. He looked up again just as Nest Egg crossed the line a frothy-mouthed winner — two lengths ahead of an underdog named So Your Crazy.

"I am going crazy," a flushed, visibly shaking McKeever said as he collected his winnings. The $170 was already destined for his 35-year mortgage on an apartment bought at market's peak two years ago.

"For the longest time I've enjoyed a night at the races. I've had cash for a social life, for the odd splash-out, for foolish bets," said McKeever, one of more than 20,000 workers laid off this year from Ireland's suddenly dormant building sites. "The dumbest bet I've ever made was on this Celtic Tiger. Now I can't afford to lose."

Tens of thousands of Irish face a financial white-knuckle ride because Europe's longest-running winning streak — the vaunted Celtic Tiger economy — has come to an inglorious end. Last month, Ireland became the first country in the 15-nation euro zone to fall into recession, and economists predict that a familiar era of closing factories and net emigration could return.

"We face stark choices. If we do not make the right ones, it will have catastrophic consequences," Prime Minister Brian Cowen said at a dinner of the country's top businessmen last week as his government authorized an emergency plan to insure the nation's banks against collapse.

The speed of the reversal has stunned Ireland top to bottom. And denial is giving way to desperation.

"We've had this corpse on the kitchen table for a while, and it's just today we've decided that it's actually dead," said Eddie Hobbs, Ireland's ubiquitous investment guru. Hobbs became a national icon three years ago when he fronted a blunt-spoken TV series called "Rip-off Republic" highlighting the outrageous expense of boomtime Ireland and foreshadowing the crash to come.

Hobbs' gloomy forecast: property price drops of 20 percent to 60 percent, labor strikes and government cutbacks.

From 1994 to 2007, Ireland was one of Europe's brightest stars. Its gross domestic product expanded at nearly triple the European average. Unemployment fell from 15 percent to less than 4 percent, and a centuries-old tradition of emigration was turned upside down.

About 1,000 foreign companies, more than half of them American, arrived or expanded in this English-speaking outpost on the EU's western edge. The companies largely sought to exploit a 12.5 percent rate of business tax, the lowest within the euro zone, and took heart from the arrival of peace in the neighboring British territory of Northern Ireland.

Within a few whirlwind years, Ireland shed its status as one of the EU's poorest members and became a magnet for many of Europe's best and brightest graduates in software design, information technology and drug research.

As in the United States, good times fueled a runaway property market, the fastest-growing in Europe. Thousands of Irish-emigre engineers, architects, plasterers and bricklayers came home from as far afield as Sydney and San Francisco.

Sean Six-Packs bought half-built apartments off architects' plans and collected hefty profits selling them a year later. Barmen bought a half-dozen properties on the side. The typical family dinner-table conversation swirled about the next smart development deals from Tipperary to Tuscany, and about how impossible the traffic was getting with all the new houses and cars.

Then the U.S. subprime crisis sent shockwaves across the Atlantic, hitting particularly hard the most America-dependent economy in Europe. International investors cast a cold eye on the exceptional exposure of Ireland's banks to property developers, bad loans and grossly inflated land prices.

The bank-heavy Irish Stock Exchange has shed nearly three-fourths of its value since April 2007. As Dublin bankers' ability to borrow internationally dried up, the government responded with a world-first guarantee for all deposits and borrowings of Irish-owned banks — a liability so big it represents $130,000 per man, woman and child.

The guarantee seemed to work, with a reported $14-billion in new deposits flowing into Dublin this month.

But the decision to take on bank liabilities exceeding $550-billion has maimed the nation's credit rating.

This is particularly bad timing for Ireland because, after more than a decade of double-digit hikes in spending and fat budget surpluses, the national finances are glowing neon red.

Ireland's economic boom goes bust 10/11/08 [Last modified: Wednesday, November 3, 2010 3:22pm]
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