Ireland Crisis

Ireland was one of the countries affected by the nervousness of the global financial market and, subsequently because of their internal situation, went under a huge debt load, which will be explained in this section. According to Honohan (2009), Ireland’s particular situation was based on the banking crisis and an enormous real estate bubble. These two causes are related, for the reason that the six Irish banks were lending too much credit mortgage to finance the construction of housings in the mid 1990’s. As well, people who were given high loans by the banks were paying very low interest rates. Among other reasons, European Commission (2012) indicates Ireland grew up in loans on disproportion compared to its economy, that is in perspective, there was low productivity and inflation rates were high compared to the supply of the available houses that no one was able to pay. Therefore, the essential problem with banks is the lending-borrowing of money within banks until there is nothing left. In other words, Kelly (2007) suggests that all shareholders equity and the mortgages debtors’ payments were given or financed to construction companies to build the massive property bubble and companies would only pay back the loans once the goods were sold.

With Irelands bad economic indicators the banks were only building their own debt and they kept financing capital projects increasing their public expenditure. The financial distress all over the world affected the Irish banks because, they were not able to borrowed more money, hence some of the local banks were bankrupt and kept the country in debt. Honohan (2009) indicates banks had lost an estimated 100 billion Euros, much of it linked to loans to construction companies and homeowners made at the land boom.