Ireland Shares Lessons After Its Recovery From The Sovereign-Bank Loop

Irish recovery off to a good start

Banking sector stabilized and fiscal consolidation efforts on track

Strong and lasting growth needed to create more jobs

A conference in Dublin on January 19 brought together Irish government representatives, European officials, academics, journalists and the IMF’s Managing Director to discuss lessons from Ireland's recovery from the sovereign-bank loop. The event was organized by the Central Bank of Ireland, the Centre for Economic Policy Research and the International Monetary Fund.

The conference acknowledged that strong recovery was underway, benefiting from the impressive banking and fiscal reforms implemented by the Irish authorities as well as from broader European efforts to overcome the euro crisis. The important role played by the Irish authorities’ strong ownership and implementation capacity was recognized, while urging caution to remain on a path of reforms and consolidation to secure lasting recovery.

"The objective of our gathering is to draw lessons not just for Ireland, the EU and the IMF but also for other countries that are facing similar challenges now,” said Brendan Howlin, Minister for Public Expenditure and Reform, in his welcoming remarks.

Patrick Honohan, Governor of the Central Bank of Ireland, said the program supported by the EU and IMF had been “a significant success, without which the well-being of the people of Ireland would be much lower than it is today.” He reminded the conference participants of the doubts of success in 2010 and the high risk factors, which subsequently dissipated. In his view, the policies that followed had delivered market confidence and stabilized finances. “The rest is up to us, Irish policy makers and the Irish people, to complete the recovery of the economy,” he concluded.

The conference covered key aspects of the Irish program, with sessions on stabilizing the banking sector, putting the fiscal sector on a sound footing, and the role of euro area policies in regaining market access and more broadly. Each session was supported by a paper prepared by an international academic expert.

Ireland needed to seek external financing from the EU and IMF in late 2010. This was the culmination of a severe banking crisis in the wake of a major property boom-bust cycle. The last act in the process saw the operation of the “sovereign-bank loop”—a vicious cycle where uncertainty about banks’ health fed into doubts around the sustainability of public debt, which...