Chris Barton 's Opinion

Technology columnist for the NZ Herald

Death of the Celtic Tiger?

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Once, the Celtic Tiger was an example for New Zealand. But in Dublin, finds Chris Barton, boom has turned to hangover.

Occupy protesters in Dublin's Dame St. Photo / Chris Barton
Occupy protesters in Dublin's Dame St. Photo / Chris Barton

Friday night, early February in Dublin - bitterly cold, but clear and crisp. At least it's not raining. Doheny & Nesbitt "Tea and Wine Merchant" of Baggot St is packed with Ireland's top drawer lawyers, businesspeople, writers, actors, possibly some bankers and a smattering of TV hosts and models seemingly oblivious to the weather and the economic chill in the air.

Reaching the carved timber bar takes time. The Victorian drinking emporium dating from the 1850s, with its original fittings and restored ornate papier-mâché ceiling, is allegedly the birthplace of the economic miracle known as the Celtic Tiger. It was here that a select band of civil servants, politicians and economists from the nearby Dail, or House of Parliament, hatched what has been satirised as the "Doheny and Nesbitt School of Economics". The crowd is artfully dishevelled, as though they never were the glitterati of the boom time. Talk is idle, with little about the current economic reality: Ireland is broke. A group of Welsh rugby fans rise above the hum in strong voice.

Along St Stephen's Green two Nubian princesses and their shackled slave girls, torches held aloft, light the entrance to the Shelbourne Hotel.

Built in 1824 this "national treasure" oozes charm with its high ceilings, chandeliers and winding staircases. The place to be seen is the blood red Horseshoe Bar, named for the shape of its counter. It's said to have been the first place to pour Guinness over champagne, creating the Black Velvet, and has been frequented by an array of famous writers including Elizabeth Bowen, William Makepeace Thackeray and Rudyard Kipling.

Many Irish people may be surprised to know they own it (or rather its convoluted debt) along with other fine hotels in Ireland - the K Club and the Ritz Carlton - plus a few offshore including London's Connaught, Claridge's and the Berkeley. "It will no doubt, be a comfort to those who have lost their jobs or found themselves paying long-term mortgages for houses that will never be worth what they've paid for them, to picture such luxury," says Fintan O'Toole in Ship of Fools: How Stupidity and Corruption Sank the Celtic Tiger.

Such hotels, around 200 of them, are a legacy to the Irish people of property magnates like Derek Quinlan and Bernard McNamara. Quinlan's Maybourne group bought the London trophy hotels in 2004 then quietly scarpered to Switzerland in 2009, leaving around €2 billion in development loans to be mopped up by the government's "bad" bank - the National Asset Management Agency (Nama) - a massive toxic waste dump of properties with loans that don't add up. Similarly McNamara, with a consortium of investors, pumped €265 million - "almost exactly €1 million per room" - into the Shelbourne, then declared himself broke in 2010 with debts of around €1.5 billion.

Purchased in 2004 for €140 million, the hotel's value was written down to €84 million in 2008. In the boom time it was said to be worth €239 million. Its owners, Shelbourne Hotel Holdings Ltd (SHHL), owed €286.3 million to creditors at the end of 2010, including bank loans of €137 million. Net liabilities stood at €191.6 million. In short, the hotel, like many residential and business properties throughout Ireland, is underwater - mired in a bog of debts so deep it's hard to see any way out. On the plus side, on this Friday night the Shelbourne's bars are full, so maybe one day Irish taxpayers may get something back on their five-star investment.

This is just a glimpse into the Irish property nightmare. Prices started to fall in late 2007 and have since wiped more than €230 billion off the net worth of Irish households, equivalent to €51,500 for every man, woman and child in the Republic according to Central Bank figures. The value of housing has dropped to less than half the levels seen at the height of the Celtic Tiger boom which began around 1995, and went hysterical from 2002-2007. "The impoverishment of households is continuing as house prices continue to fall," says a sober report in the Irish Times. "Overall liabilities stood at €192.4 billion in mid-2011, or almost €43,000 a head." Other estimates say 250,000 households are in negative equity - owing more than their properties are worth.

Then there's Nama - the government's debt cemetery. In September 2008 the government decided to guarantee all the liabilities of the Irish banks including two insolvent institutions, the Anglo Irish Bank and its smaller partner in crime Irish Nationwide Building Society, described by O'Toole as "no more than casinos for property developers." The direct cost was a staggering €45-50 billion. O'Toole points out in Enough is Enough: How to Build a New Republic that almost €40 billion - €34.4 billion for Anglo and €5.4 billion for Irish Nationwide - is completely dead money. The full cumulative cost of bailing out the Irish banks was of course much more. In late 2010 the European Union and the International Monetary Fund approved loans of €85 billion - with a string of austerity measures attached - to get Ireland out of its mess.

It's a thirsty thought. Leaving the Shelbourne and finding Peter's Pub on Johnson Place - one of the most civilised bars in Dublin, also packed - there is little sign austerity measures are actually beginning to bite. Or are the Irish simply drowning their sorrows? "We don't talk about that much," says Peter. He's the perfect host, recommending the pub's Galway Hooker Irish Pale Ale, Carrig Irish Lager and offering a whiskey nightcap. "It's important to remember so far we're still remaining upright."

To be sure. City publicans' current promotion, complete with mobile app, is "Dublin Does Fridays like nowhere else: Let's prove we are the most sociable city in the world". Which on this Friday, with multiple servings of Dublin's best craic, they've undoubtedly achieved.

Perhaps the most surprising aspect of this Friday, which began with a dinner at Bang Restaurant on Merrion Row, is that people don't seem angry. That's despite knowing that a small group of reckless bankers, corrupt politicians and profligate developers have well and truly fecked Ireland. What's more, most of them have escaped penalty, leaving the government to pick up the tab.

Bang is a case in point. Early this year its former owners, the Stokes twins, Simon and Christian, were disqualified from acting as company directors for four years - the judge labelling the 36-year-olds as "delinquent". Bang and the opulent members' club, Residence, were wound up two years ago with debts of €2.4 million. The restaurant, under new ownership, has risen from the ashes. "The rise and fall of the Boomtown Prats" was the Independent's take on the Stokes brothers' cluelessness. Yet five years ago the "Bang brothers" were the poster boys for the Celtic Tiger, "the much-adored and admired Jedwards of the Dublin hospitality scene, feted in the gossip columns" O'Toole asks the same question. Why in the face of slashing public sector wages and social welfare payments and cutting spending, including infrastructure investment, was there not rioting in the streets? "Why did protesters in Greece end up chanting 'We are not Ireland' meaning 'We are not passive stooges!'?" Part of the answer, he says, is fear - mortgage debts creating terror amid a climate of high job losses and insecurity. In late 2006 just 4 per cent were unemployed. Today it's 14 per cent and climbing toward rates not experienced since the mid-1980s.

"The public response seems puzzlingly fatalistic," says professor of history Gearoid O'Tuathaigh at National University of Ireland, Galway. It's not, he insists, the full story. Public protest is below the radar and "beginning to congeal" around local community flashpoints where "misery is beginning to impinge acutely". Anger is expressed in other ways too, such as the wholesale ousting of the architects of the Celtic Tiger, Fianna Fáil, in last year's general election, which saw the ruling party's electoral support slashed by 75 per cent.

Then there's the tendency that when the going gets tough in Ireland, many people go elsewhere. Overall emigration was up by 16.9 per cent last year to 76,400, with 40,200 of those departing being Irish nationals - up from 27,700 the year before. Britain, Canada, Australia, New Zealand and the US have all recorded increases in Irish arrivals. O'Tuathaigh says those leaving tend be the 18-35 age group - a cohort that normally challenges social norms. The demographic imbalance creates a "social anaemia" - more elderly and young dependent classes left behind and a more conservative society.

Another reason for the passivity, suggests O'Toole, is that "both hot anger and cold fury" are crowded out by a host of other feelings - deep despair, a sense of futility and fatalism, and self contempt. "What could you expect from this bloody country?" The boom time did banish the underlying Irish sense of doom, "the whispering in our ears that we would screw it all up". But then it all went horribly wrong. "The question that nags at us now is: if we couldn't make a go of it in the longest boom in our history, how can we make a go of it with a vast burden of debt, a continuing global crisis and a landscape scarred with half built houses whose increasingly decrepit emptiness mocks our delusions of grandeur."

Dame St: on the corner of Castle St an A4 page is affixed to the shut front door, helpfully advising "Unfortunately The Philips Shop has now closed but don't worry!" Across the road Apex Travel agency is long gone, the shopfront paint faded and peeling. In the window there's a possible sign of hope - "Help Wanted" for a Mr Simms Olde Sweet Shoppe opening soon. Further down near Sycamore St the once thriving Mermaid cafe - closed for about a year - remains firmly shut. "To Let" and "For Sale" clutter building facades everywhere: "beautifully restored entire top floor office suite"; "prime commercial premises"; "flexible lease terms available".

The abundant vacany signs in Dame St are borne out in nationwide statistics. In 2010 the Urban Institute at Dublin's University College found 345,116 vacant residential properties (including 64,000 holiday homes) in the Republic. "A Haunted Landscape", a report from the National Institute for Regional and Spatial Analysis (NIRSA), concurred - one in six houses uninhabited for the majority of the year, including some 620 "ghost estates" that litter the country.

With 14.7 per cent of the total housing stock vacant, it's little wonder squatters are beginning to occupy some of them. Occupation is ongoing too at the Occupy Dame Street camp in front of the Central Bank of Ireland where there are signs of anger: "We're not paying the household tax"; "Banks didn't share their profits we won't share their losses". There's also a symbolic cheque for €1.25 billion made out to "unknown financial institution" and signed "People of Ireland".

The Central Bank's new governor, Patrick Honohan, doesn't seem to mind. He sees the protesters' presence as symbolising the feelings of a large part of society about what has gone wrong in the financial sector. He's reported as saying that as long as no one was harmed or put in danger by the protesters' presence, the bank was not inclined to take action to have them moved.

News that the Central Bank may occupy the partially completed Anglo Irish bank building is an irony too far for some. "Nothing seems a more apt metaphor for the boom and bust of the property market than the skeletal hulk of an unfinished office block," writes Irish Times environment editor Frank McDonald. After all it was the Central Bank "which had spectacularly failed to regulate the banking sector and prevent the development of the 'casino culture' that fuelled the boom and led to the bust."

O'Toole notes how apt it was that the Central Bank literally could not spell the word ethical, preferring "ethitical" in one of its inspection reports. "Stumbling over ethics was one of the bank's specialties," he says, laying out the sorry tale of the Irish banking system colluding "on a massive scale, with fraud, tax evasion and routine breaches of exchange control laws." And how, while scandal after scandal unfolded in the late 1990s, the Central Bank, which regulated the system throughout, maintained its job was to make sure banks were solvent and that "issues like tax evasion were not really its business."

Nowhere was the failure of oversight more evident than in the case of Anglo Irish. Among the revelations were loans of €129 million, concealed over eight years, to Sean FitzPatrick, the bank's chairman and former CEO. On North Wall Quay beside the river Liffey stands what was supposed to be the Anglo Irish headquarters. Described by an Irish High Court judge as a "fitting tombstone to the supposed Celtic Tiger," the eight-storey concrete skeleton is a forlorn sight. "Donations Welcome" reads a stencil sign on the graffiti covered hoardings. "Qu'ils mangent de la brioche" (Let them eat cake) says another.

Some want the Anglo Irish hulk turned into a monument of "renaissance and redemption" for the Celtic Tiger folly says McDonald. One proposal calls for a "vertical park", "a new landmark on the Liffey, nurturing a more sustainable future." Next door is an example of the unsustainable: hoardings around an empty site advertising "a unique development by Treasury Holdings", part of the grandiose Spencer Dock scheme that joins the acres of excess office space and unfinished projects along the river.

A consortium headed by Treasury Holdings did complete the €380 million National Conference Centre - "the coke can" with its tilted multi-storey glass cylinder atrium a block away from the Spencer dock casualties. It was the result of public-private partnership, leaning very much in favour of the private. The government pays the consortium an annual charge of €47 million for the first five years, and just under €24 million for the subsequent 20 years, aftre which the building reverts to full state ownership. That's despite a report by the Comptroller and Auditor General showing costs would outweigh the benefits by up to €217 million.

The convention centre and the adjacent €60 million Irish harp-shaped Samuel Beckett Bridge represent the last remnants of the Celtic Tiger: expensive, glitzy and with plenty of showbiz. All that's missing is for a Riverdance troupe to appear. It's with a certain grim glee that O'Toole points to Michael Flatley's highly successful cultural export as capturing the essence of the Celtic Tiger."It took a traditional and rather despised form - Irish dancing - and injected it with the steroids of sex, speed, Irish-American optimism and fake tan."

As a New Zealander abroad, albeit briefly, it's hard not to notice similarities between the Irish and New Zealand economic models. O'Tuathaigh says the conversation of the time lacked intellectual content "about what kind of society we want." The question posed was whether the model should be Boston or Berlin. Shorthand for: "Do we want an American-style, market-driven society in which entrepreneurship, personal advancement, individualism are valorised as the dynamic for growth and prosperity? Or do we have a more coherent version of collective responsibility?" A debate, O'Tuathaigh says, Ireland never had. It sounds frighteningly similar to the lack of debate in New Zealand over Rogernomics.

O'Tuathaigh is also critical of the universities for not producing a compelling discourse about the way Ireland was going. "Universities permitted themselves, by and large, to be recruited into the economic growth model providing an appropriate labour force for an expanding economy driven by direct foreign investment, overwhelmingly led by the United States."

Then there's the drive towards low personal and company taxes - although New Zealand has yet to achieve the Irish nirvana of a 12.5 per cent corporate tax rate. Combine that with light-handed business and banking regulation and the Celtic Tiger recipe is almost ready to roar.

While New Zealand avoided the systemic banking collapse of Ireland and others, the global financial crisis almost obliterated New Zealand's non-bank finance sector. Since 2006 more than 60 finance companies have fallen, mainly because of exposure to the speculative property market. Estimates indicate 200,000 investors will lose around 50 per cent of their $8.5 billion investments. Compared to Ireland's catastrophe it's small beer.

But the finance company collapses have brought a focus to the poor regulatory oversight of the sector. New Zealand's Serious Fraud Office is investigating numerous finance companies, including South Canterbury Finance, which collapsed in 2010 owing nearly $2 billion to 35,000 investors. Directors in a number of other finance companies are also facing charges. The lawbreaking is not in the same league as Ireland's corrupted community of political and business interests, but it does indicate some parallels.

The downing of the Celtic Tiger, so admired as an example for the world to follow, has disrupted some accepted truths. Ship of Fools asks three questions:

* Where does most of the foreign investment in Ireland come from?

* What sectors of the economy does it go into?

* What is Ireland's largest bank?

The answers are common knowledge: the United States; information technology (Intel, Microsoft, Google, etc) or pharmaceuticals (Pfizer, Eli Lily, Merck); and Allied Irish bank. As O'Toole points out, the common knowledge is wrong. Most foreign investment actually came from the Netherlands - "mostly connected to high-level financial juggling by American-owned transnational corporations with their Dutch-based treasury management subsidiaries routing capital flows through Dublin." Most investment was actually in the International Financial Services Centre in Dublin - "essentially a tax haven for global finance." And the largest bank was in fact the German giant Depfra - a specialist lender to governments and municipalities. Once "as German as sauerkraut" it was now as "Irish as bacon and cabbage." The benefits were in enormous amounts of global finance sloshing around on Ireland's shores. The reason it was there, says O'Toole, was not simply the low taxation, but the "lax, and in some cases virtually non-existent regulation."

So how did it all come apart? O'Toole talks about a primitive, pre-modern land hunger creating a new feudalism "in which an elite puffed up the price of land and inflated a fatal property boom." O'Tuathaigh talks about the rapid influx and sheer overpowering force of cheap credit. "That a huge tsunami of slush money could come into a small economy precisely because of these more macro issues of European interest rates wasn't immediately noticed. Nobody thought the consequences would be so seismic in the banking system as a whole."

While evidence suggests the Eurozone cannot survive in its current shape, and that the debt burden is unmanageable, O'Tuathaigh is cautious about predicting what happens next. He describes the situation as unprecedented - something one cannot extrapolate from any historic episode. "I am as insecure in my ability to look forward as anybody else at the moment."

He talks also about a corrosive cynicism about alternative ways of doing things, a sense of disempowerment in the body politic and that people went mad on a credit splurge."That's when we lost the run of ourselves," he says. "It's the Icarus factor. We flew too near the sun. In the times of plenty we weren't sufficiently careful or modest. We began to consider ourselves invincible. We began to feel we were always going to be in the winners' enclosure."

Dublin's main thoroughfare, O'Connell St, with its progression of statues of prominent political leaders, captures much of the city's magnetic ambience - its culture, rich history and literary heritage - and its mad aspirations. Its centrepiece is the Spire of Dublin, erected in 2003. Also known as the "the stiffy by the Liffey", "the stiletto in the ghetto" and "the binge syringe", the 120m tapering stainless steel needle reaching for the sky seems the perfect representation of the Celtic Tiger boom time.

* Chris Barton travelled to Dublin as a guest of Emirates Airline and Tourism Ireland, with support from Dublin Tourism. Emirates flies four times daily from New Zealand to Dubai via Australia connecting with its nonstop service between Dubai and Dublin.

- NZ Herald

Chris Barton

Technology columnist for the NZ Herald

Chris Barton is a freelance writer with 28 years experience in newspapers and magazines. He's been writing about technology since 1986, was the founding editor of New Zealand PC World and has won numerous media awards, including, in 2009, journalism's top prize, the Wolfson Press Fellowship to Cambridge. He has a Master of Architecture, teaches part time at the Auckland School of Architecture and is an architecture critic, winning, in 2014, the Canon Media Awards Reviewer of the Year.

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