ABSTRACT
The Irish case presents a challenge to the varieties of capitalism framework, given it had a different growth model than the other cases yet still faced similar market pressures during the crisis. The government enjoyed strong public finances prior to the crisis as well as an initially comfortable position of household balance sheets. Nevertheless, imbalances grew as consumption and wages outstripped productivity and the economy (including government finances) quickly came to depend hugely on the construction sector, creating a significant vulnerability. Irish banks’ dependence on wholesale funding to support its lending for property and construction exacerbated vulnerabilities. The bailout of the financial system, and the deep recession as construction activity collapsed, devastated government finances. The subsequent troika program demanded “substantial fiscal adjustments” and structural reforms to address efficiency as well as restructuring of the banking system. The Irish government implemented its troika program in a determined way, but continued throughout the implementation phase to negotiate for greater affordability and sustainability. Post-exit from the program, the Irish economy has rebounded strongly. Notable losers from the crisis include some older and younger households. Moreover, the Irish banking system has become smaller, deleveraged and more concentrated. Finally, the crisis altered the political landscape substantially as the crisis created a backlash against traditional parties and contributed to rising support for independents and the Sinn Fein party.
