Nick Shaxson ■ The Celtic Tiger: the Irish banking inquiry and a tale of two booms

The IFSC in Dublin's Docklands

The IFSC in Dublin’s Docklands

Cross-posted from Fools’ Gold:

One of our inaugural articles on this site was a post in March looking at the causes of the “Celtic Tiger” boom in Ireland. It contained a striking graph and a wealth of analysis suggesting strongly that what caused the boom was, above all, Ireland’s accession to the EU single market, rather than its supposedly ‘competitive’ corporate tax policies. After all, Ireland has been trying to be a tax haven since the 1950s, but it was only in the early 1990s that take-off began (also see this rollicking historical account of how Ireland became a corporate and financial tax haven, or offshore financial centre.) 

Another factor that has often been cited in Ireland’s post-1990s boom is its supposedly ‘competitive’ policies of applying financial laxatives to Irish legislation and regulation in an effort to tempt as many foreign financial players to the Irish Financial Services Centre (IFSC). Certainly, the IFSC has grown substantially. But did this help Ireland as a whole?

Jack Copley investigates.


Jack Copley

Jack Copley, University of Warwick

The Celtic Tiger: the Irish banking inquiry and a tale of two booms

By Jack Copley, University of Warwick

With the Irish Banking Inquiry well under way, it seems that the revelations get more scandalous by the day. This has ranged from the frustrating: former AIB boss referring to his €1.4 million salary as “silly”; to the genuinely astounding: experts from Ireland’s National Treasury Management Agency were brought to government offices on the night of the bailout, only to be left sitting in a side room for four hours, unconsulted, while the Taoiseach, ministers and certain bank executives decided to issue a blanket guarantee of bank liabilities.

Yet there remains an undercurrent of exhausted acceptance in much of the discourse surrounding the inquiry. On the one hand we have these outrageous financial excesses; yet on the other hand the ascendance of Irish financial services supposedly delivered the Celtic Tiger boom. Perhaps, people wonder, ‘this is the price we have to pay for a process that dragged the Irish economy into the advanced capitalist world.’

Yet this narrative relies on fallaciously collapsing the Celtic Tiger phenomenon into one homogenous period, beginning in the 1990s and ending in 2008. In fact, the Celtic Tiger was a tale of two booms: the first spanning the period from the early 1990s until 2001, and a second lasting from 2001-2007.

The first economic boom was characterised by phenomenal export-led growth, fuelled largely by US multinational corporations (MNCs) – constituting 80% of all MNC investments in Ireland by the late 1990s. Inward FDI flows rose from 2.2% of GDP in 1990 to an astonishing 49.2% in 2000 (O’Hearn, 2000, p73; Kirby, 2010, p37). This export growth was focused in high-end technological manufacturing, especially the computer industry, chemicals and electrical engineering.

In fact, by 1995 foreign MNCs accounted for half of Irish manufacturing employment and two thirds of manufacturing output (Breathnach, 1998, p38). To a large extent these US MNCs used Ireland as a platform from which to export to the new European single market. As well as this MNC-led export growth, Ireland was also quite successful in fostering indigenous firms that successfully integrated into international markets, especially in the software industry.

After the 2001 global recession it seemed as if the Irish economy would begin to cool down. FDI flows into Ireland never again reached their pre-2001 levels; export growth subsequently fell from an annual average of 17.6% between 1995-2000 to 4.9% annually between 2001-2006; and unemployment rose from 3.8% in 2001 to 4.6% in 2003 before stabilising (Barry, 2005, p40; Kirby, 2010, p33-35; Kline, 2004, p196).

Yet, Ireland did not consequently return to a more ‘normal’ growth trajectory. By 2003 Ireland was experiencing rapid rates of growth that continued through to 2007. However, the events of 2001 had led to a crucial change in the productive base of the Irish economy. A financial services and housing bubble had come to replace export buoyancy as the driver of the economy.

From 2003 the property boom picked up speed and quickly outpaced economic fundamentals. By 2007 Ireland was building half as many houses as Britain, despite having only one-fourteenth its population. This was fuelled by an enormous expansion of credit, as Irish banks borrowed from international capital markets. During this period, an inflated proportion of tax revenue was derived from stamp duties on house sales, which allowed for increasing public expenditure, while construction employment made up for the declining exports base. With the 2008 crisis this model disintegrated.

While the Celtic Tiger was a period with two very distinct stages, Irish financial deregulation had no such major cleavage. Rather, the gradual remodelling of Ireland’s financial and tax system along more ‘competitive’ lines continued steadily from the mid 1980s until the mid-2000s. To name but a few processes of Irish financial liberalisation:

  • 1984-86: Guidelines for lending to the private sector abolished.
  • 1985-91: Interest rate mechanisms liberalised.
  • 1988-93: Exchange controls removed.
  • 1991-99: Liquidity ratios reduced to 2%.
  • 2002: 12.5% corporation tax introduced [note that this was just the latest in a series of changes going back to 1956].
  • 2003: Single Regulator established that introduced principles-based regulations that gave banks considerably wiggle room.

So it is clear is that these changes, which are supposed to have increased the so-called ‘competitiveness’ of Ireland’s financial system, cannot explain the stark division of the Celtic Tiger into two separate booms.    

While the second boom – based as it was on an unsustainable bubble of financial and construction speculation – may well have been caused by, or at least greatly sustained by, the accumulation of deregulatory legislation, the first export boom was the result of a combination of factors. These included a skilled English-speaking workforce and membership of the European Single Market (as Fools’ Gold already explained here), as well as a low wage regime instituted through the Social Partnership Agreements, a large pool of unemployed workers to draw on, and the enormous boom in global FDI flows during this period. At most, the lax financial regime played only a supporting role.

All of this makes the Banking Inquiry’s revelations even less excusable, because there was simply no silver lining to these excesses. The competitive restructuring of Ireland’s financial system only resulted in significant growth once the export-based real Celtic Tiger boom has been exhausted. The consequent financial boom resulted in weaker growth and the largest banking bust the country has ever seen.



Barry, F. (2005) Future Irish Growth: Opportunities, Catalysts, Constraints. Quarterly Economic Commentary. Winter volume: 34-58.

Breathnach, P. (1998) Exploring the ‘Celtic Tiger’ Phenomenon: Causes and Consequences of Ireland’s Economic Miracle. European Urban and Regional Studies. Vol. 5(4): 305-316.

Central Bank of Ireland (2004) Financial Liberalisation and Economic Growth in Ireland. Quarterly Bulletin. Accessed from here.

Kelly, M. (2010) What Happened to Ireland. VoxEU [internet]. May17th. Accessed from:

Kirby, P. (2010) Celtic Tiger in Distress: Explaining the Weaknesses of the Irish Model. Second Edition. Basingstoke: Palgrave Macmillan.

Kline, B. (2004) The Changing Social Environment of Modern Ireland: Immigration and the Issues of Politics, Economics, and Security. Mediterranean Quarterly. Vol. 15(4): 186-202.

O’Hearn, D. (2000) Globalization, “New Tigers,” and the End of the Developmental State? The Case of the Celtic Tiger. Politics & Society. Vol. 28(1): 67-92.



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