It's ten years on from the shocking international recession that rocked Ireland to its core but have we really learned anything in the last decade?
Last Sunday, September 30, was the 10th anniversary of the day the crash became a reality in Ireland. Back in 2008, September 30 was a Tuesday and everyone here remembers waking up that workday morning to the shocking news that the situation in the Irish banks had got so bad the government had given them a blanket guarantee backed by the Irish state.
Although few people realized the full implications at the time, it meant that the Irish state was now carrying the can for the €440 billion that the banks owed.
The guarantee meant that all the foreign banks and other financial institutions that had loaned money to the Irish banks to get a slice of our property boom were going to get all their money back. They were going to get it all back even though property prices here were in free fall and some of the Irish banks were on the verge of collapse.
That Tuesday morning, after an all-night crisis meeting in Government Buildings, we were told that that the guarantee would stabilize the situation and allow time for our banks to sort out the mess in an orderly manner. We were told the banks had a temporary liquidity problem and that the guarantee would protect them from a run and keep the ATMs working. With the Irish state as guarantor, it would mean our banks could continue to get funds on the money markets and work their way through the crisis.
For a while, as you may remember, it sort of worked. But only for a while. Within six months the situation had deteriorated so much the state was pumping billions into the banks to shore them up.
As time went on, it got worse rather than better and the international money markets then began to doubt the ability of the Irish state to keep the show on the road. It was no longer just the Irish banks that could not source funds. The Irish state began to face interest rates so high that state borrowing was no longer possible.
Now it was not just the banks that were going down, it was the country. Tax revenue had collapsed. Two years after the guarantee had been given, the state was virtually bankrupt.
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We were facing the reality that the state would no longer be able to fund welfare, schools, hospitals, etc. We had no choice but to accept a massive bailout from the IMF, the ECB and the EU. Their representatives, known as the Troika, arrived to tell us how to run our economy and sort out the state finances.
It was national humiliation. It led to heavy cutbacks in state spending as we followed the austerity plan imposed by the Troika to work towards getting the state finances back on to a sustainable footing again. The pain went on for several years.
Looking back now, September 2008 seems like a lifetime ago rather than just one decade. The recovery at first was slow but in the last few years it has been extraordinary, with a stellar growth rate and now close to full employment. It's a remarkable turnaround when you remember that after the crash one in five people here lost their jobs.
There are continuing legacy problems, of course, most notably in housing following the total collapse of the construction sector a decade ago. But even that is slowly coming round as house prices and rents soar because of the shortage, attracting developers back into activity again.
In comparison with other EU countries, where growth is sluggish, we are now doing so well that our economy is said to be booming again. While that has to be good news, it has been greeted with nervousness by some economists here who are worried that we may be repeating the mistakes of the past and could boom our way back into another bust unless we are careful.
This note of caution was evident last week as the 10-year anniversary of the bank guarantee was covered by the media here. There was also a lot of questioning once again about how we had been forced to pay back the debts owed to the foreign banks that had lent us money during the boom.
Instead of allowing one or two banks here to fail and walking away from much of what we owed to foreign banks, we had let ourselves be bullied by Europe into paying everything back.
The truth is we did not have much choice at the time, since we needed the bailout. We ended up owing €64 billion. and of that around €30 billion is gone down the drain permanently. It has brought our total national debt to over €200 billion and financing that is now a huge drag, costing us close to €6 billion a year in interest payments, a big slice out of the budget pie each year.
It's worth remembering, however, that this would be far more if we had defaulted on our debts. Because we undertook to pay back what we owed the state can now borrow at very low interest rates. If we had taken the other route we would now be paying the same high rates as unreliable countries in South America and elsewhere.
Instead of endlessly going over the question of whether we were screwed by the EU back then, it would be much better for us at this stage to be analyzing what got us into so much trouble in the first place. Looking back now, what have we learned from the boom-bust catastrophe we hit 10 years ago? Are we repeating the same mistakes again?
Sadly, the answer to that question has to be yes. Currently we are adding more financial fuel to the fire, even though the economy is booming.
What we should be doing is trimming government spending and widening the tax base to produce a budget surplus, money that could be put aside to make the next downturn easier to bear. Instead of that we are still running a budget deficit, still borrowing and still increasing our national debt.
The feeling that the boom is back is widespread, and there are widespread demands for even more government spending in many areas like health and housing, with little consideration for efficiency and ability to pay. A stark example is the pressure to restore state sector pay to the levels it reached before the crash 10 years ago, with workers on the state payroll like nurses and teachers threatening strikes if there is any further delay.
There is also pressure for income tax cuts, which is understandable given how high the rates are here even for the squeezed middle income earners. But that should be financed by a widening of the tax base rather than by state borrowing, and there is no sign of that happening.
We will know more when the budget for 2019 is announced on October 9. But the next election could be within the next year and the government will not want to alienate any section of the voters by trimming spending.
So politics yet again will dictate what happens rather than what is the economically responsible path to follow.
This is dangerous enough even in normal times, as we saw in the run up to the crash 10 years ago. But it is even more perilous now because of the huge uncertainties we face.
The first is Brexit, which could be disastrous for us if it goes badly -- and it is looking worse with every passing week as the British continue to make a mess of it. That could create a huge downturn and chaos in the agri-food sector here which employs thousands of people.
On a wider level, there is the reality that we must be near the top of the current economic cycle internationally and that a global slowdown lies ahead. How bad that will be, with the added factor of President Trump and his trade wars, is hard to predict. But there is general agreement among economists that the start of a downturn in the cycle lies ahead.
This is particularly serious for Ireland since we have one of the most open economies in the world and are heavily dependent on our ability to export. Combined with the Brexit effect, this means that the huge number of jobs provided by foreign companies based in Ireland may no longer be as secure as before.
Our dependence on these global IT and pharma multi-nationals, mainly American, is well known. No one is expecting them to suddenly leave, although we all know Trump is trying to get them to shift investment back home.
But even a moderate slowdown in their activity here would have a serious impact.
Apart from jobs, it would also hit state finances here hard. Despite our very low effective corporate tax rates, the multi-nationals here channel so much of their international sales revenue through Ireland they supply a big chunk (around 10 percent) of total tax revenue here every year. And the US multi-nationals here pay almost 90 percent of that, which shows just how dependent we are on them (and on keeping Trump as sweet as possible!)
With this kind of uncertainty hanging over us, the need for a careful budget next week is paramount. Instead of believing our own publicity that we are booming again and that anything is possible, we should be planning for a more difficult future.
It may not happen, of course. But the sensible thing is to plan for the worst even while we are hoping for the best.
If we have learned anything from the last 10 years, we should know that.
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