After the race

“THERE'S a craze for land everywhere!” The line draws wry laughs from audiences in Dublin's Olympia Theatre at a revival of “The Field”, John B. Keane's play about a land dispute in south-west Ireland. Their country has been transformed since the play was first staged 45 years ago. But Mr Keane's lines also belong to a more recent time in Irish history.

Consider St Michael's Green, an abandoned half-built housing estate near the village of Lixnaw, in north Kerry. “Look at what's coming soon to Lixnaw”, proclaims a sign at the entrance. Visitors who take up the offer are met with an apocalyptic sight. Four finished houses, complete with driveways, stand in line. Windows are broken; shards of glass are strewn on the ground. Peer (carefully) through the window-frames and you can see doors hanging from hinges and semi-carpeted floors. Opposite the houses, surrounded by metal fencing, some of it collapsed, are the exposed foundations of houses never built. Rubble and rubbish lie everywhere. With wind howling and rain lashing, it is easy to imagine that you are gazing on the ruins of a failed civilisation. And in a way you are.

Such “ghost estates” are only the most visible scars of Ireland's extraordinary crash, which in four years has turned the country from Europe's star performer into a sickly invalid. After a long history of poverty and unemployment, the Irish thought they had finally transformed their country into a successful modern state. Now they find themselves saddled with staggering debts and an international bail-out. Some wonder whether the country's achievements in recent years counted for anything at all. How did this happen? And what comes next?

In the 1990s Ireland became the “Celtic Tiger”. Sensible policies and a benign global economy helped it catch up with European neighbours that for decades had left it languishing. Between 1993 and 2000 average annual GDP growth approached 10%. But then someone put speed in the tiger's water. Over the last decade the boom turned bubbly, as low interest rates and reckless lending, abetted by dozy regulation, pushed up land values and caused Ireland to turn into a nation of property developers. In County Leitrim, in the Irish Midlands, housing construction outstripped demand (based on population growth) by 401% between 2006 and 2009, according to one estimate.

Few minded. The Irish became, by one measure, the second-richest people in the European Union. “The boom is getting boomier,” said Bertie Ahern, Ireland's taoiseach (prime minister), in 2006. The government began exporting the Celtic Tiger model, telling other small countries that they, too, could enjoy double-digit growth rates if they followed Ireland's lead. People splashed out on foreign holidays, new cars and expensive meals. “We behaved like a poor person who had won the lottery,” says Nikki Evans, a businesswoman.

Then it all began to go wrong. Property prices started sliding in 2006-07, leaving the banks hopelessly exposed. “What happened in Ireland was very boring,” says Morgan Kelly, an economist at University College, Dublin, and one of the few observers to have predicted the crash. “There were no complex derivatives or shadow banking systems. This was a good old 19th-century, or even 17th-century, banking collapse.” On September 15th 2008 Lehman Brothers tumbled, sending a giant tremor round the world. Two weeks later, with the share prices of Irish banks in free fall, the government took the fateful decision to guarantee liabilities worth €400 billion ($572 billion) at six financial institutions.

The costs of the rescue mounted as the banks' losses grew, springing a giant hole in the public finances. The banking crisis had become a sovereign-debt crisis. International investors began to target Ireland as a weak link in the euro zone, raising its borrowing costs to unsustainable levels. In November 2010 it became the second country in the euro zone, after Greece, to accept a bail-out from the EU and the IMF.

“I can't tell you how depressing it is here now,” says Anne Enright, a novelist. An austerity budget pushed through to meet the terms of the €85 billion bail-out is starting to hit pockets. Unemployment has shot up to 13.4%, wages have fallen and, after a peak-to-trough contraction of 14% of GDP, the economy is still flatlining. “It's very demoralising that this thing has happened when we thought we had arrived at a modern industrialised society,” says David Begg, general secretary of the Irish Congress of Trade Unions.

The myths of success

Not everyone welcomed the changes that prosperity brought. Kevin Barry, a writer who had been living abroad, returned home to find that “people only spoke about two things: property prices and commuting times. It was extremely boring.” Ms Evans, who runs PerfectCard, a pre-paid debit-card business, saw some of her younger staff acquire a sense of entitlement which made them hard to motivate. (It's easier now, she says.)

As Ireland grew richer, one form of exceptionalism—the fatalistic belief that Ireland was destined always to be western Europe's poor outpost—gave way to another: the myth of the Celtic Tiger. “We're very narcissistic,” says Ms Enright. “We believed our boom was better than anyone else's.” The twin articles of independent Ireland's faith, Catholicism and nationalism, were eclipsed by material ambition: the desire to get on, to improve one's station in life. “People lost interest in the other world while they were so successful in this one,” says Mark Patrick Hederman, abbot of Glenstal Abbey, near Limerick.

The new Ireland looked attractive to outsiders. When the country opened itself to new EU members after the 2004 eastward expansion, Poles and others poured in looking for work (see chart 1). Rather than resenting the newcomers, many Irish were proud that their country had become a place people wanted to enter rather than leave. “The country was welcoming, open, easy-going,” says Monika Sapielak, a Pole who began to visit in 2001 and who now runs a contemporary-arts centre in Dublin. “There was a sense that anything was possible.” Not any more.

Many people see the economic crisis as a chance to jettison the baggage of excess that marked the later Tiger years. The first casualty will be Fianna Fail, the party that presided over the “boomier” years and, in coalition with the Greens, the subsequent crash. In a general election on February 25th, voters will boot the party out; the polls suggest it could fall to third place, behind Fine Gael and the Labour Party.

This alone is a big story. Fianna Fail is the “natural” party of government in Ireland: it has been in power for three out of every four years since winning a landslide victory in 1932, and it has been the biggest party in parliament ever since. Yet it is hard to detect a whiff of revolution. The next government will almost certainly be led by Fine Gael (probably in coalition with Labour), a party with a centre-right platform not obviously distinct from Fianna Fail's. (In Ireland's peculiar politics, the difference between the two main parties dates from the 1922 civil war, fought over the terms of independence from the British.) Few believe the party would have been a more responsible steward of the Celtic Tiger. Enda Kenny, its leader and probably the next taoiseach, is no more setting Irish hearts alight in this campaign than in his 36 years in parliament. A telling sign of the mood is that although 95% of voters say they are unhappy with the government, 16% of them plan to vote for it.

Enda Kenny will renegotiate the bail-out—and fix your drains

At this tumultuous time for Europe—deadly riots in bailed-out Greece, hundreds of thousands marching over pension reform in France, a general strike in Spain—Ireland's collapse may be the worst trauma of all. But apart from a union-led demonstration in Dublin in November, there have been few outward signs of rage. Why do the Irish seem so quiescent?

As a small country, Ireland is a hard place to hide in. Reports abound of disgraced bankers being hounded out of pubs by burned investors, or Fianna Fail candidates having dogs set on them. “There aren't that many strangers in Ireland,” says Ruairi Quinn, a Labour frontbencher. This, some say, acts as a safety valve, allowing citizens to vent their anger directly rather than take to the streets.

But it also lends Irish politics an oddly intimate flavour. National candidates tout achievements that in other countries would be considered the domain of local councillors. This goes along with a proportional voting system that forces candidates of the same party to compete for votes, turning elections into intensely personal contests. “If you're not seen to be helping your constituents, you will not be re-elected,” says Martin Ferris, Sinn Fein TD (member of parliament) for Kerry North.

During a windy canvassing session in a middle-class area of Tralee, County Kerry's largest town, many voters say they will back Mr Ferris because they remember how, seven years ago, he worked to improve access to local footpaths and tackle anti-social behaviour. Not one mentions his party's policies. You would expect this lot to be Fine Gael supporters, says a party worker, who appears to know them all personally. But Mr Ferris has won them round. She herself began canvassing for him because of his community work.

A TD working the campaign trail looks like democracy in action. But there are problems. Ambitious types do not want to spend their careers promising to fill in potholes and deliver passports, so they avoid politics. Moreover, the endless focus on local issues distracts from the business of running the country. “Politicians say, ‘Elect me and I'll get you a swimming pool.' You'll get your pool, but there won't be any money to run it,” says Damian Loscher of Ipsos MRBI, a market-research agency.

The radical transformation of Ireland into a globalised economy left some old attitudes untouched. Voters continued to tolerate levels of misbehaviour and, in some cases, outright corruption in their politicians that in other countries would have ended careers. Cronyism flourished, as businessmen, politicians and bankers sealed themselves off in a cosy world of golf matches, fine dining and the Fianna Fail tent at the Galway races. “It felt like an old boys' club,” says Ms Evans—who had to use personal contacts, too, to get the government's attention.

Fond, but not in love

When the EU and IMF delegations arrived in Dublin for bail-out talks last November, the Irish Times ran a lachrymose editorial asking if this was what the national heroes of the 1916 Easter Rising had died for. Outsiders saw this as a sign of resentment from a proud nation that was once again having its affairs run by foreigners. Yet the editorial went on: “The true ignominy…is that we ourselves have squandered [our sovereignty].” Having seen their leaders make such a mess of things, most Irish welcome the arrival of technocrats.

Still, one long-term effect of this crisis may be a cooling of Ireland's love affair with the EU. When the country joined what was then the European Economic Community in 1973, children danced in the streets. Agricultural subsidies and infrastructure funding flooded in from Brussels. Equal membership in a club of nations was a seal of sovereignty. Ireland remains more positive about the EU than most other members. But the Irish have begun to suspect that the “solidarity” they hear so much about from European leaders does not apply to their troubled economy.

The terms of the European element of the bail-out arouse particular ire. There is something approaching a consensus in Ireland that the country rescued Europe (specifically, German and French investors that had lent heavily to Irish banks) last November, rather than the other way around. There have been heated exchanges between Irish and EU politicians over how to apportion the blame for Ireland's crash. Some compare Ireland's bank guarantee unfavourably with Iceland's decision, after a similar meltdown in October 2008, to let the banks go to the wall, creditors be damned. Eyeing an opportunity, the parties that are likely to form the next Irish government have made extravagant campaign promises about renegotiating the bail-out package. They may find it difficult to keep them once in office.

Ireland is not about to adopt the Euroscepticism of its larger neighbour, Britain. But it is bound to become more pragmatic. The new government will, for example, fight hard for permission to impose bank losses on creditors not covered by the 2008 guarantee (something the European Central Bank rejected during the bail-out negotiations). “The attitude has shifted from ‘We want to be part of Europe' to ‘We need to be part of Europe',” says Mr Loscher.

One fear is that a growing number of young people will not be part of Europe at all. Lack of prospects will drive them to America, Canada or Australia. For at least 150 years, emigration has been the instinctive Irish response to hardship. Alan Barrett of the Economic and Social Research Institute (ESRI), a Dublin-based research body, says emigration is to the Irish what inflation is to the Germans: a trauma formed by economic wounds inflicted decades ago that still runs deep in the collective memory. The generation that came of age in the Celtic Tiger years was the first that did not feel it had to move abroad to thrive. But for now, those days are over.

A recent report by the ESRI, based on employment forecasts, estimates that a net 100,000 people will leave Ireland between April 2010 and April 2012. That is a lot: at its peak, the net annual outflow in the 1980s was 44,000. Evidence of the exodus is already emerging. Work-placement and visa-assistance companies are advertising widely. Election candidates report that emigration is a big issue on the doorstep.

Still, many argue that a population willing to move to where the jobs are is exactly what a country in Ireland's predicament needs. Historically, labour mobility has helped to keep a lid on unemployment. And there have been other benefits: the diaspora, particularly in the United States, has proved a useful asset for Ireland, politically as well as economically. Moreover, a move abroad today is hardly the one-way ticket it was for many in the 19th century. When Ireland started to boom in the 1990s many émigrés returned home, bringing with them much-needed skills and capital.

But such arguments will ring largely hollow in a country where emigration is so strongly linked to feelings of national shame. “You can talk about the collapse in GNP,” says Mr Barrett, “but the emotional touchstone of emigration is a major issue. That's why there is a great sense of regret.”

Tiger no more

In five years' time Ireland will mark the 100th anniversary of the Easter Rising. The country will ask itself how far it has satisfied the hopes of those who fought for its independence. Some fear that the crash has shown the Celtic Tiger to have been a phantom, an illusionist's trick that distracted Ireland from its underlying poverty with glitzy cars and big houses.

It is true that Ireland will not soon pull itself from the economic bog. Recovery will be slow at best, particularly if an inflation-wary ECB starts to jack up interest rates. Unemployment is likely to stay in double figures for some time. Some fear that the cost of servicing the debts to the EU and IMF, and of feeding the insatiable maw of the banks, will eventually force Ireland into a debt restructuring. This would be a terrible blow to a country desperate to believe that the worst is over.

Yet Ireland is not about to return to the dark days of the 1980s. Numerically, the recession has sent living standards back only to the levels of around 2002 (see chart 2). The flexible economy will remain attractive to multinationals seeking a toehold in Europe, especially if it keeps its low corporate-tax rate. Domestic demand is still depressed—a big concern. But unlike other troubled euro-zone countries, Ireland is regaining competitiveness by reducing unit labour costs. Exports are booming, and there should be a current-account surplus this year for the first time in over a decade. The demographic outlook is favourable. “There are no brakes to growth if we can get this thing going,” says Danny McCoy, head of the Irish Business and Employers Confederation.

At least as important, despite the fog of gloom sitting over the country, Ireland has much to be proud of. Not all the gains of the Celtic Tiger years were squandered. An optimistic, entrepreneurial spirit emerged that will not be crushed by a few years of recession. Higher education has expanded dramatically—30% of Irish students are the first in their family to attend university—as has the labour force. A generation has grown up knowing nothing but prosperity. This accumulation of expectation and experience makes Ireland a very different country from the weary, fearful place of the mid-1980s.

Perhaps the most hopeful future for Ireland lies in becoming, for the first time, an ordinary small European country, with a properly functioning democratic system and a stable, diversified economy. But first it must begin to see itself with sober eyes. Kevin Gardiner of Barclays Wealth, who coined the phrase “Celtic Tiger” in 1994, says that Celts have a nasty habit of extrapolating both good and bad times for ever (as a Welshman, he dares to make such generalisations). Just as the Irish suffered a bad bout of irrational exuberance in the boom years, they have now been overcome by excessive pessimism. Or, as Ms Enright puts it, “Ireland is a series of stories it tells itself. None of them are true.”