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Global Financial Crisis

What’s happening in Ireland?

Simon Curtain
Partner/Private Client Adviser
17 Nov 2010

Markets around the world are currently focused on Europe, and in particular Ireland’s banking woes. While the media is ablaze with exaggerated headlines, let’s investigate what exactly has the world so worried.

The concern with Ireland centers around the country’s banking system. Prior to 2008, Irish banks relied on interbank lending as a source of funds. Interbank lending allows banks to obtain money from other banks at a cheap rate and then on-lend funds to consumers at a higher rate.


When the Global Financial Crisis hit in 2008 interbank lending all but dried up, leaving Irish banks in a difficult situation. At the same time, Ireland experienced a property market crash which saw property values fall and debt levels soar.


As with many other countries around the world the Irish Government stepped in, borrowing money from other countries to provide capital for its own banking system. Unfortunately it would seem that the money the Irish Government borrowed was perhaps far too great for the country to handle.


Ireland’s external debt (debt owed to other countries) represents around 1,305% of its Gross Domestic Product (GDP), making it the most indebted country in the world. To put this in perspective; Ireland owes the rest of the world $535,000 for each person of the population. In comparison, Australia’s percentage of external debt to GDP is around 126%, meaning we owe the rest of the world around $49,000 per person.

Understandably the European Union (EU) is putting pressure on Ireland to accept a rescue package to reduce debt and provide financial stability, not only to Ireland but to the rest of the world.

But the Irish are refusing to accept assistance from the EU as the terms of accepting the package would mean employing austerity measures (cuts to public benefits etc) which the Government is loathe to do with an election looming in the next year or so.

Unfortunately, if Ireland fails there is a real risk of a flow on effect to other countries in the EU, in particular Spain, Portugal and Italy, so perhaps it is in the best interest of us all if Ireland puts their pride behind them and accepts the rescue package.


Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.