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Building on easy money:The political economy of housing bubbles in Ireland and Spain

Author

Listed:
  • Sebastian Dellepiane

    (University of Strathclyde)

  • Niamh Hardiman

    (School of Politics and International Relations, University College Dublin, UCD Geary Institute)

  • Jon Las Heras

    (Manchester University)

Abstract

This paper undertakes a structured, focused case-study comparison of housing bubbles in Ireland and Spain, based on the selection of two most-different cases that nonetheless share a common outcome of interest. Both countries were exposed to the same set of changes in their international policy environment in the late 1990s and early 2000s, in the form of a low interest rate regime associated with the creation of European Monetary Union (EMU). The two countries have very different economic structures, different political decision-making profiles, and different relationships between the political and banking systems. Yet these two countries had the most extreme experience of housing bubbles during the 200os, and both suffered a similar construction-related economic collapse that ruined their respective banking systems after 2008. The paper argues that the decision-making taking place within their very different domestic institutional frameworks was subordinated to the fact that they shared a similar form of international vulnerability. Both were extremely open to mobile international capital during the 2000s. Their vulnerability to financialization resulted in a common experience of very rapid asset price inflation, which left both countries particularly exposed when the international financial collapse took place. The shared experience of European ‘peripherality’ meant that two countries belonging to different ‘varieties of capitalism’ ended up with very similar kinds of economic collapse.

Suggested Citation

  • Sebastian Dellepiane & Niamh Hardiman & Jon Las Heras, 2013. "Building on easy money:The political economy of housing bubbles in Ireland and Spain," Working Papers 201318, Geary Institute, University College Dublin.
  • Handle: RePEc:ucd:wpaper:201318
    as

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    File URL: http://www.ucd.ie/geary/static/publications/workingpapers/gearywp201318.pdf
    File Function: First version, 2013
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    References listed on IDEAS

    as
    1. Michelle Norris & Menelaos Gkartzios, 2011. "Twenty years of property-led urban regeneration in Ireland : outputs, impacts, implications," Open Access publications 10197/5166, Research Repository, University College Dublin.
    2. Callan, Tim & Walsh, John R. & Coleman, Kieran, 2005. "Tax Expenditures," Papers BP2006/3, Economic and Social Research Institute (ESRI).
    3. Sebastian Dellepiane Avellaneda & Niamh Hardiman, 2010. "The European Context of Ireland’s Economic Crisis," The Economic and Social Review, Economic and Social Studies, vol. 41(4), pages 473-500.
    4. Michelle Norris & Menelaos Gkartzios, 2011. "Twenty years of property-led urban regeneration in Ireland: outputs, impacts, implications," Public Money & Management, Taylor & Francis Journals, vol. 31(4), pages 257-264, July.
    5. repec:esr:chaptr:jacb200505 is not listed on IDEAS
    6. Morgan Kelly, 2009. "The Irish Credit Bubble," Working Papers 200950, Geary Institute, University College Dublin.
    7. Christophe André, 2010. "A Bird's Eye View of OECD Housing Markets," OECD Economics Department Working Papers 746, OECD Publishing.
    8. Thomas Conefrey & John Fitz Gerald, 2010. "Managing Housing Bubbles In Regional Economies Under Emu: Ireland And Spain," National Institute Economic Review, National Institute of Economic and Social Research, vol. 211(1), pages 91-108, January.
    9. Pedro Lains, 2008. "The Portuguese Economy in the Irish Mirror, 1960–2004," Open Economies Review, Springer, vol. 19(5), pages 667-683, November.
    10. Blánaid Clarke & Niamh Hardiman, 2012. "Crisis in the Irish Banking System," Working Papers 201203, Geary Institute, University College Dublin.
    11. Kearney, Ide, 2012. "Measuring Fiscal Stance," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI), vol. 2012(3-Autumn).
    12. Hall, Peter A. & Gingerich, Daniel W., 2009. "Varieties of Capitalism and Institutional Complementarities in the Political Economy: An Empirical Analysis," British Journal of Political Science, Cambridge University Press, vol. 39(03), pages 449-482, July.
    13. José Gabriel Palma, 2009. "The revenge of the market on the rentiers," Cambridge Journal of Economics, Oxford University Press, vol. 33(4), pages 829-869, July.
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    Citations

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    Cited by:

    1. Marcell Zoltán Végh, 2014. "Has Austerity Succeeded in Ameliorating the Economic Climate? The Cases of Ireland, Cyprus and Greece," Social Sciences, MDPI, Open Access Journal, vol. 3(2), pages 1-20, June.
    2. Duffy, David & Foley, Daniel & McQuinn, Kieran, 2016. "Cross Country Residential Investment Rates and the Implications for the Irish Housing Market," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI).
    3. Emilios Avgouleas, 2015. "Bank Leverage Ratios and Financial Stability: A Micro- and Macroprudential Perspective," Economics Working Paper Archive wp_849, Levy Economics Institute.
    4. Niamh Hardiman, 2013. "Rethinking the political economy of fiscal consolidation in two recessions in Ireland," Working Papers 201316, Geary Institute, University College Dublin.
    5. Dorothee Bohle, 2017. "Mortgaging Europe’s periphery," LEQS – LSE 'Europe in Question' Discussion Paper Series 124, European Institute, LSE.
    6. Bulbarelli, Miriam, 2016. "The housing finance system in Italy and Spain: Why did a housing bubble develop in Spain - and not in Italy?," PIPE - Papers on International Political Economy 26/2016, Free University Berlin, Center for International Political Economy.

    More about this item

    Keywords

    housing bubbles; financial liberalization; credit; Ireland; Spain;

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F52 - International Economics - - International Relations, National Security, and International Political Economy - - - National Security; Economic Nationalism
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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