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Deleveraging, Banks and Economic Recovery in Ireland

Author

Listed:
  • DON WALSHE

    (University College Cork)

  • DERMOT O’LEARY

    (Goodbody Stockbrokers)

Abstract

: The challenge that the Irish economy faces can best be described in the context of flows and stocks of assets and liabilities. Under the Memorandum of Understanding with the IMF/EU/ECB Troika, Ireland must implement a severe fiscal austerity programme and reduce the size of its banking system. These goals must be achieved in the context of a deleveraging process in the household sector brought about by the need to repair balance sheets following a collapse in the value of housing assets. The current policy mix, which aims to reduce these stocks simultaneously, is unlikely to be successful, a feature we term the domestic trilemma. An external trilemma arising from the constraints of EMU membership also limits the policy choices for highdebt economies attempting to engineer an export-led recovery. This paper argues that a sequencing of policies is required for Ireland to achieve its goals.

Suggested Citation

  • Don Walshe & Dermot O’Leary, 2012. "Deleveraging, Banks and Economic Recovery in Ireland," The Economic and Social Review, Economic and Social Studies, vol. 43(1), pages 165-197.
  • Handle: RePEc:eso:journl:v:43:y:2012:i:1:p:165-197
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    File URL: http://www.esr.ie/vol43_1/06%20Walsh%20article.pdf
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    References listed on IDEAS

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    1. Garry Tang & Christian Upper, 2010. "Debt reduction after crises," BIS Quarterly Review, Bank for International Settlements, September.
    2. Cussen, Mary & Phelan, Gillian, 2011. "The Rise and Fall of Sectoral Net Wealth in Ireland," Quarterly Bulletin Articles, Central Bank of Ireland, pages 70-82, July.
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    Cited by:

    1. Petra Gerlach-Kristen, 2014. "Testing the Permanent Income Hypothesis for Irish Households, 1994 to 2005," The Economic and Social Review, Economic and Social Studies, vol. 45(4), pages 511-535.

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