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Debt statistics 2016

Overall international debt burden (% of GDP)169
Government payments on foreign debt (% of revenue)25
Government foreign debt (% of GDP)56
Private foreign debt (% of GDP)1825
IMF and World Bank debt cancellation ($ billions)0
Country case studiesYes

Country case study

Reckless lending and borrowing by banks fuelled an unsustainable boom in Ireland, which crashed when the global financial crisis began in 2008. The Irish government guaranteed all the debts of the banks, transferring a huge amount of debt onto the public. Before the crisis the Irish government had an annual surplus, but its total debt has now increased from 10 per cent of GDP to 100 per cent. In 2010 the overly indebted Irish government was lent more money by the IMF and EU in order for it to keep paying the foreign banks; effectively yet another banking bailout. Unemployment has shot up rapidly, to 15 per cent, and austerity is hitting the most vulnerable groups the hardest. Campaigners and unions have called for debts to be declared illegitimate and repudiated, such as the debts of Anglo-Irish bank which have been taken on by the State.

Ireland gained its independence from the United Kingdom in 1922. One of the most infamous episodes in the country’s colonial history was the potato famine in the mid-1800s, when 1 million people died, and 1 million emigrated. Potato blight destroyed much of the crop peasants depended on. But throughout the famine, the country remained a net exporter of food to England, with meat exports actually increasing. But the poor could not afford high prices, and food was shipped under armed guard from the most famine-stricken parts of Ireland.

For several decades, Ireland remained one of the most impoverished countries in Western Europe. A major economic expansion began in the late 1980s, as the country shifted from being dependent on agriculture to new digital technologies, and then banking and finance.

In 2002 Ireland adopted the Euro, effectively fixing the country’s exchange rate with other Euro members, and giving up any control over interest rates. The boom continued, with economic growth averaging over 5 per cent a year between 2002 and 2007. The boom was increasingly driven by foreign banks lending money to Irish banks. Borrowing by Ireland’s private sector led to the foreign debt of the country as a whole reaching 1,000 per cent of GDP by 2007. Large amounts of foreign owned assets were also claimed to be owed to banks, supposedly partially balancing this huge figure. Much of this money flowed into house prices, which doubled between 2000 and 2007.

In contrast to the reckless lending and borrowing of the private sector, the government had a budget surplus during this time, and its total net debt – owed to both Irish savers and foreigners, was down to just 11 per cent of GDP by 2007.

The boom rapidly turned to a bust in 2007/2008 when banks, starting in the US with the sub-prime crisis, had to start writing off loans they were due to be paid, and so stopped lending to each other. Irish banks both lost out on assets they claimed to be owed through complex derivative contracts, but also stopped being lent new money. This quickly led to falls in house prices, down by a third by 2010, which cut the amount banks could get back on housing loans which had gone bad.

The Irish banking sector was bust. In September 2008, unlike the Icelandic government, Finance Minister Brian Lenihan guaranteed the debts of the six main Irish banks, transferring obligations directly from the private sector to the state. At the same time, the Irish economy crashed; by 3 per cent in 2008 and 7 per cent in 2009. This drastically reduced government tax revenues. Unemployment increased from 5 per cent to 15 per cent, increasing the need for government spending on welfare payments.

Irish government net debt increased ten-fold to over 100 per cent of GDP by 2012. The IMF estimate that Ireland’s (public and private sector’s) net foreign owed debt (so taking account of assets held abroad) is 90 per cent of GDP.[1]

One of the banks guaranteed was Anglo-Irish. Anglo-Irish could not afford to meet payments to its bondholders; the creditors, primarily foreign, which had recklessly lent money to the bank. The Irish government agreed to make sure these payments would be made. To do so, it got agreement from the European Central Bank for the Irish Central Bank to create Euros with which to pay the debt. However, it only did so on the basis that the Irish government ‘repay’ the Central Bank over 20 years. When these payments are made, the money is effectively deleted at the insistence of the European Central Bank, supposedly to stop an increase in inflation.

The Irish government is scheduled to make almost €50 billion in payments on this Anglo-Irish debt between 2011 and 2031. Much of the money to meet these payments will be borrowed, rolling over the illegitimate banking debt for many decades to come.

Having taken on the banking debt, and with the collapsing economy, the Irish government was rapidly heading towards not being able to meet its debt payments. In December 2010, the EU and IMF agreed to lend €85 billion over three years to prevent the Irish government defaulting, and hence potentially bankrupting various western banks, particularly in large lending countries such as the UK. The loans are effectively another bank bailout, with the debt remaining with the Irish state. At the end of 2012, 15 per cent of the population were still unemployed, with 30 per cent of young people unemployed and the economy was 10 per cent smaller than 2007. One in ten people in 2010 suffered from food poverty.

Nessa Ni Chasaide from Debt and Development Coalition Ireland (DDCI) says: ”The social cost of the government’s austerity approach is extreme, clearly hitting the most vulnerable people in the country the hardest … The most vulnerable groups being hit are children, one-parent families (most of which are headed by women), people with disabilities, unemployed people, and people dependent on pensions and other fixed incomes.”

DDCI and other campaign groups and trade unions have formed debt justice Ireland, calling for the debts inherited from Anglo-Irish Bank to be declared illegitimate and written-off.

[1] IMF. (2011). Ireland: Fourth review under the extended arrangement and request for rephrasing of the arrangement. International Monetary Fund. Washington DC. 29/11/11.

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