The fall of Ireland's economic miracle was a hard lesson, writes Alison McCulloch

Barely a day goes by in Ireland now without some blaring headline announcing some scandalous revelation in the great unravelling of the former Irish economic miracle.

From the arrests of financiers to the shock-horror disclosures about the depth of bank losses, to cuts in public services, rises in unemployment, taxes and fire sales of luxury homes - the fallout just keeps on falling.

Indeed, there's so much of it that Irish writer and columnist Fintan O'Toole could have filled several more chapters in the months since his book, Ship of Fools: How Stupidity and Corruption Sank the Celtic Tiger, came out in Ireland.

For a work that delves into the underbelly of big finance, property deals, economic indicators and the like, the book is quite the gripping page-turner - a kind of a tragedy, comedy, crime-thriller and parable all rolled into one.

And although its biggest audience is undoubtedly in Ireland, where all of this went down, its jaw-dropping litany of cronyism, self-delusion, idiocy, hubris, thievery and greed - to pluck just a few terms from the book's pages - includes some trenchant lessons for countries like New Zealand, where the Irish blueprint, or at least parts of it, still seems to have considerable allure.

Just how swiftly Ireland's economic promise became its threat is beautifully illustrated in the first chapter, which opens with Bertie Ahern, the former taoiseach (prime minister), giving a US$150 ($210) a head speech on "the Irish model of development" to a business audience in Honduras.

Not so unusual on its face, given Ahern's popularity on the speaking circuit, but surprising for its timing: February 2009.

By then, the writing had been on the wall for some time: gross domestic product was crashing, unemployment was rising along with the deficit and the huge Anglo Irish Bank had been nationalised in the face of imminent collapse.

By August, O'Toole writes, "the Celtic Tiger speech was quietly dropped from Ahern's portfolio by his agents".

From Honduras to the United States to New Zealand, "the Irish model" had acquired the status of "new universal truth of economics, society and development" - one that would work "irrespective of time and place".

In New Zealand, it was extolled by business and industry groups, as well as visiting Irish politicians.

"As New Zealand debates the pros and cons of its economic reforms," a 1999 Dominion article began, "Ireland's deputy prime minister, Mary Harney, says low taxes, foreign investment and competition have been the keys to Ireland's success."

(Harney was back in New Zealand in March, and there seems to have been a lot less starry-eyed Tiger talk.)

O'Toole argues Ireland's progress was much more complicated than any one-size-fits-all mould.

In the early Tiger years, he explains, there certainly was solid growth, but it was growth grounded in a multitude of factors, like the global boom of the 1990s, aid from the European Union (around $20 billion between 1987 and 1998), state investment in tertiary education, a "social partnership" involving the state, employers, unions and other social actors, and the "utterly miserable" performance of the Irish economy in previous decades.

That initial and arguably enviable progress lasted until 2001, the year O'Toole points to as a more accurate date for the Tiger's demise.

"What made the real end of the Celtic Tiger after 2001 disastrous," he writes, "was the decision of the Fianna F il-led government to replace one kind of growth with another."

Enter the extraordinary tales of political and financial misconduct as the now infamous property and development bubble-makers took the reins.

One that's currently making headlines in Ireland is that of Sean FitzPatrick and the bank he once led, Anglo-Irish, whose bailout is ultimately expected to cost the Irish taxpayer at least $40 billion.

In a chapter focusing on the bank's extraordinary book-cooking and risk-taking, O'Toole lays out how Anglo-Irish loaned FitzPatrick tens of millions of dollars over the years.

As the house of cards began to fall, the bank arranged to lend a "group of trusted pals" more than $850 million so they could help prop up its own shares.

Overexposed to a rapidly deflating housing bubble, the move didn't work, the banking crisis deepened and the country's leaders took what O'Toole calls "probably the most disastrous decision ever made by an Irish government".

Leaping into "the expanding pool of darkness that was the Irish banking system", the government promised to guarantee all of Anglo's obligations, even though it didn't really know what they were.

"At least two generations of Irish people," he writes, "would be made to pay for the blind folly and greed of a closed elite."

These days, FitzPatrick isn't the banking superhero he once was, and there's a new Financial Regulator in town bemoaning Ireland's lax regulations.

As Anglo-Irish tries to recover the estimated $130 million still owed by FitzPatrick, who was arrested and questioned by the authorities in March, reporters have begun taking more of an interest in his movements.

They showed up recently at Dublin airport to meet him on his return from a trip to Marbella, Spain.

Did he feel he owed the Irish people an apology, The Sunday Independent asked. "No, why?" FitzPatrick replied. Even during the good times, FitzPatrick and his cohort had their critics, but back then it was heresy to raise doubts about the economic miracle. Those who did so were firmly slapped down for being naysayers and moaners, including by Bertie Ahern himself.

For O'Toole, it was that refusal to hear other voices, coupled with Ireland's succumbing to its own simplistic story of success, that reach to the heart of what went wrong.

And it's also where he has a warning for New Zealand, as it considers setting up a Dublin-style financial services hub.

"I certainly wouldn't be telling anybody that you can't set up international financial services in your own country," he said. "But you have to think really carefully about what's attracting these companies to your country rather than somewhere else."

If it's low taxation, that only works up to a point, he said. "You're entering into a competitive game which is perhaps not sustainable, because if New Zealand undercuts the Irish deal on taxation then somebody else will undercut New Zealand's and so on, we know that."

In Ship of Fools O'Toole argues that what attracted big finance to Dublin's International Financial Services Centre was not just lower taxes (Ireland has a 12.5 per cent corporate rate) "it was also lax, and in some cases virtually non-existent, regulation.

The Irish state acquired an incentive to keep banking supervision to a minimum."

And there's the rub. You can't let the rules slide for the foreigners without that same licence contaminating your own institutions and regulators.

"If you're going to do this," O'Toole said, "ask yourself whether you think your own political institutions are strong enough to withstand massively increased lobbying, and whether you think your regulatory institutions are powerful enough and independent enough to be able to make sure that you can police this Wild West that you are bringing in."

If Ship of Fools is any guide, Ireland's were not.

* Alison McCulloch is a New Zealand journalist living in Ireland.