In Ireland, the biggest funerals take place in the smallest churches. St
Mochta’s, on Dublin’s western fringes, is little bigger than a front room.
So many mourners turned up for the funeral of Patrick Rocca that they spilt
out onto the pavement. Anyone who is anyone in modern Ireland was there,
huddled together under a sky the colour of a day-old bruise.
Politicians, pop stars, billionaire developers, horsemen and the sporting
elite. Even the paparazzi. Rocca would have liked that. The 42-year-old was
the self-styled poster boy for the new, resurgent Ireland, with a glamorous
wife, private planes and helicopters, and a property business worth, at its
peak in 2007, €450m. But one morning in January, he snapped. The first sign
that anything was wrong was when neighbours saw him walking round the garden
of his €5m house in Holmeleigh, an exclusive residential enclave of Dublin,
in pyjamas. When his wife, Annette, returned home just before 9am after
taking the couple’s two sons to school, she found her husband dead in the
hall. He had shot himself in the head with a shotgun. The morning papers
revealed the value of his business had collapsed to as little as €14m, with
debts of €18m.
Rocca’s funeral was not simply a wake for one man. To many, the bells that
rang out as the hearse pulled away were a lament for a nation. The Celtic
tiger that transformed a beer-soaked backwater into the envy of every small
nation with a thirst for a makeover is dead, and its cubs are looking to
emigrate because they see no future. The signs, big and small, are
everywhere. One bank, Anglo Irish, the country’s third largest, has been
nationalised, and the government is negotiating bail-outs for two more.
Foreign firms, notably Dell computers, are shutting factories. The family
china — Waterford Wedgwood — is being sold off. Guinness has put its plans
to build a €1 billion “super-brewery” into cold storage. Crowds at the horse
races are down 10% and on-course betting has dropped 18%. In the most
remarkable reversal of economic fortune, Poland, whose workers flocked to
Ireland in the go-go years, has started hosting job fairs to attract
unemployed Irish workers to Warsaw. The ad slogan? “Come to the new Ireland.”
Paddies heading for Poland? Surely it can’t be that bad? Unfortunately, it
can. If you think the British economy is a mess, spare a thought for the
neighbours. Ireland had a bigger boom and is now suffering a bigger bust,
with fewer resources to dig itself out of the hole. In his cramped,
pamphlet-strewn office on the banks of the Liffey, Professor John
FitzGerald, an economist at the Economic and Social Res-earch Institute and
the son of the former taoiseach, Garret Fitz-Gerald, confirms that salaries are
falling, house prices have slumped by a third, the stock market is at a
14-year low, and unemployment is set to hit 12% by the end of the year.
Ireland recently became the first western European country to have its
top-notch credit rating downgraded from stable to negative by the ratings
agencies Moody’s and Standard & Poor’s. This year, the budget deficit will
reach 10%, the highest in the EU, and the government concedes the economy
will shrink by 6.5%, compared with 2-3% in the UK. “This is a dramatically
bigger shock for Ireland than for the UK,” FitzGerald says.
Things are so bad that Nouriel Roubini, the New York banker nicknamed Dr Doom
because he predicted the global crash, says Ireland could be the next
country to go bust after Iceland. He points out that Ireland got richer
faster than Iceland, in much the same way, and now has many of the same
problems. “If a big institution in Ireland were in trouble,” he says, “the
country does not have the resources to bail them out.” Government pledges to
support the banking sector by honouring all the country’s bank deposits
amount to 250% of annual economic output. Ministers acknowledge the risk. In
the words of Brian Lenihan, finance minister, the eco-nomy has “fallen off
a cliff”. Here, MPs are so worried about default that they are advising
British savers to withdraw their money from Post Office accounts, whose
savings scheme is run by the Bank of Ireland. This being Ire-land, there’s a
joke about it all. “What’s the capital of Ireland?” they ask.
“Oh, about 20 euros.”
Those who have lost their jobs are hardly laughing. Ciaran Costello’s voice
betrays anguish bordering on physical pain when he tells a tale typical of
Ireland’s boom and bust. He fed and rode the Celtic tiger. He got the job,
accounts manager for a luxury housing developer; the house, a three-bedroom
semi in Longford, west of Dublin; and the car, a Mercedes. But then the
beast devoured him. Last autumn the developer went bust and he was laid off.
He could not keep up payments on the house or the car and they were
repossessed. Now back home with his parents, he has decided his best
business plan is to leave, but he can’t follow in his grandfather’s
footsteps and head for the US “because the arse has fallen out of the
economy there, too”. Instead, he’s heading for Beijing. “I’ve got a friend
there who is making good money as a driver, and he says he can set me up
with something. If that doesn’t work, I’ll try Australia. Living here is
like whistling in a graveyard.”
What makes Ireland’s fall particularly depressing — and, to men like Costello,
bewildering — is that not so long ago the Emerald Isle was the best place to
live in Europe. Officially. In 2004 The Economist declared that the
country’s low-tax, high-growth economy, its high-quality education and
natural beauty gave it an overall quality of life unmatched anywhere in the
world. The country “combines the most desirable elements of the new, such as
low unemployment… with the preservation of elements of the old, such as
stable family and community life,” it said. The data certainly appeared to
confirm that a threadbare land of saints and scholars had become the
Singapore of Europe. There was record investment in farming and
infrastructure. Low taxes and a skilled workforce were attracting foreign
investment by high-tech manufacturers. Jobs were so plentiful that, for the
first time in modern Irish history, more people were arriving in the country
than leaving. The number of foreign workers rose from 1% of the population
to over 12%, sending it towards levels last seen before the potato famine.
The boom changed much more than the economy: it transformed traditional Irish
society, culture, even religion. John O’Keeffe saw the changes more clearly
than most. He left Dublin in 1986 and worked for Swiss Bank Corporation and
Barings in London before returning in 2000 to a country where only the rain
seemed familiar. Sitting at the bar of the Residence private members’ club,
O’Keeffe, now the editor of Irish Entrepreneur, says: “I left a godly land
of broke but merry alcoholics and came back to a place where people who used
to dig potatoes were buying luxury apartments sight-unseen and driving
Porsches. It was worse than the 1980s boom that I lived through in London
because it was so un-Irish, so the selfishness, the vulgarity seemed worse.
There were more divorces. On a Sunday the shops were full with people who
seemed to worship Versace in the way our grandmothers worshipped the Virgin
Mary.”
Ireland was livin’ it large and lovin’ it. But there was one big problem: what
began as a boom was becoming a binge, and the worst sort — a property binge.
“We started well enough. Ireland needed to grow, to play catch-up with the
rest of Europe, but we ended up putting all our eggs in one basket,” says
John Gilligan, mayor of Limerick. “Then the basket broke.” The uncomfortable
truth is that Ireland is an economic model, but not in the way The Economist
reported. In recent years, it has become a case study of how a small nation
should not handle new-found riches. To understand why, you need to know
about Section 23 and about the Galway Tent. But first you have to go to
Doheny & Nesbitt, a pub in Dublin, take a seat in one of the oak snugs and
order a pint of the black stuff. It’s here that it all started.
Doheny & Nesbitt is around the corner from the main government ministries and
Ireland’s leading banks. Every night, politicians, bankers, businessmen and
the odd holy man turn up to drink. “It’s the kind of place where you bump
into the finance minister in the gents,” says Ronan Lyons, chief economist
at Ireland’s biggest property website, Daft.ie, who is a regular. Every
night conversation turns to politics and business. In the late 1980s, with
the euro promising currency stability, a clutch of economists, politicians
and civil servants planted the philosophical seeds for the Irish economic
miracle. What if, their beery musings went, Ireland slashed taxes, reduced
import duties and embraced foreign investment; then adopted the euro, giving
it access to a much bigger capital market and enabling it to enjoy increased
investment from Brussels and low interest rates set by the European Central
Bank (ECB); and finally threw in traditional advantages — cheap labour, the
English language and GMT? In the new globalised market, surely this would
create economic alchemy, turning the base metal of Irish productivity into
pure (Kerry) gold?
The new economic model, known as the “Doheny & Nesbitt School”, soon became
government policy. It brought huge benefits. Thanks to EU investment, so
many new roads and railways were built that the wealthier residents of the
north looked over the border in envy for the first time. Low taxes and low
interest rates lured foreign multinationals, notably high-tech giants such
as Intel and Google, pharmaceutical firms and financial-services outfits,
which chose Ireland as a platform from which to operate in the eurozone. A
new tax rule, Section 23, encouraged developers to build, by allowing them
to offset construction costs against tax. With banks offering low-interest
mortgages with no money down, Ireland’s construction industry exploded.
Developers were so successful they became cultural figures, much like the
hedge-fund and private-equity elite in London and New York. Come August,
many were found hobnobbing with decision-makers in the Fianna Fail tent at
the Galway Races, a pint of Guinness in one hand and a champagne flute in
the other.
There’s no doubt that the Doheny & Nesbitt strategy was the right policy, in
the right place, at the right time. “We rode global trends perfectly for 15
years,” says Lyons. From 1987 to 2003, gross domestic product per person
rose from 70% of the EU average to 136%, while unemployment sank to 4% from
17%. GDP growth regularly touched an astonishing 10% a year — three times
the EU average. The number of euro millionaires rose a hundredfold. Ireland
was transformed from one of the poorest countries in western Europe into the
fourth richest country in the Organisation for Economic Cooperation and
Development, wealthier than Britain or the US. Thanks to growing tax
revenue, the government could increase its spending dramatically and still
run a fiscal surplus. It was, it seemed, wealth built upon wealth.
