Irish Financial Crisis

Ireland once suffered poverty 20 years ago before experiencing an economic boom from 1990s, whose GNP quadrupled from 1990 to 2007(Kelly, 2010). However, the Irish economy almost collapsed due to the financial crisis in 2010. It is still controversial that whether the Irish financial crisis is predictable and preventable. This essay will argue that though the Irish Financial Crisis could be predicted due to some sighs, it was still hard to prevent its explosion.

There are a several pieces of evidence that predict the economic crisis to break out. First, the unusual rapid growth of Irish house prices caused Kelly’s concern in 2006. He pointed out that there was an iron law of house prices that the house prices would fall sharply if associated with the income and rent tightly while the house price in Ireland rose faster than income with the decline in house rent, which showed that there was a bubble in property market. To make matters worse, a soft landing of house prices is unrealistic and the house prices could be expected to fall by 40-50 per cent (Kelly.2006). Therefore, the sharp growth of house prices in Ireland with the decline of rent could be considered as a dangerous signal to the arrival of the economic crisis.
Another evidence is that the size of the mortgage lending in Ireland is too large. The value of mortgage lending in 2008 is 7 times of its value in 1997 while the real GDP only rose by 75 pre cent from 1997 to 2008 (Kelly,2010).The huge amount of loans enter the property market, contributing to the rise of the house prices. Once the house prices fall, the value of the mortgage will shrink, which causes huge loss to the bank because of the bad debt. In Ireland, the large size of mortgage lending puts the banks at risk.

Though the Irish financial crisis could be predicted, it is very hard to prevent it. When the signs of the house bubble such as high house prices and large size mortgage are noticed, it...