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Boom gives way to bust in Ireland's oversold economy

When even U2 sees the plug pulled on a real estate project, you know things are bad.

March 04, 2009|Henry Chu

DUBLIN, IRELAND — Bono wants to save the world. But can the U2 front man save his homeland?

Not long ago, the relentlessly philanthropic rock star, his band and a team of property developers looked at Dublin's dilapidated docklands and envisioned a tower that would rise like an exclamation mark punctuating the Irish capital's rejuvenation. The U2 Tower would be Ireland's tallest building, complete with luxury apartments and a recording studio for Bono and the boys.

But the project is now on hold and may even be dead -- a victim of the worldwide credit crunch and a nose-diving Irish economy.

When the European Union's poorer members warned the richest countries last weekend of a "new Iron Curtain" coming down on the continent, they were talking not only about the need to bail out the countries of the former East Bloc. They also meant countries like Ireland, which, after two decades of growth that made it Europe's fastest-growing economy, is now one of its biggest busts.

The U2 Tower's arrested development is a woeful scene replicated throughout Ireland these days. The construction site is still a gaping hole, where padlocked gates prevent the curious and the intoxicated from wandering in, and graffiti smear the walls, including one paean that reads, with grim irony, "U2 Thanks 4 keeping alive our dreams."

Day after day brings news of another company closure or hundreds more pink slips. The housing market, once so hot that newspaper real estate ads were dubbed "property porn," has sunk into a deep freeze. Shops beg for business with 70% discounts. Immigrants are heading home. By almost any measure, the Celtic Tiger -- as everyone called Ireland's rip-roaring economy -- lies wounded and bleeding.

The bitter joke these days is that the difference between Ireland and Iceland, where the bank-driven economy and the government have collapsed, is one letter and six months.

"Everything was booming. Then it all just stopped," said Colm Lambe, a 20-year-old Dubliner.

"The dole queues are the longest they've ever been," he said, referring to the lines of people collecting unemployment benefits.

Lambe would know: He was standing in one. An out-of-work stagehand, he waited with at least two dozen other people outside a welfare office on a recent chilly morning before the doors had opened.

Such scenes were unimaginable only a year ago, when the Emerald Isle was still booming from an economic liberalization that unleashed investment and drew in hordes of multinational companies eager to take advantage of low taxes and an educated, English-speaking workforce.

But then the Irish economy, like so many others, found itself shipwrecked on the shoals of the global financial crisis. Unlike other countries, however, Ireland had relied so heavily on its overheated property market to fuel growth that the crash has been harder and faster.

Banks were lending money as fast as they could ladle it out, often with little regard to the creditworthiness of their clients. Developers and residents borrowed with gusto, using cheap loans to pay for new homes, bigger cars and holidays abroad, their wallets stuffed with euros.

Now more than 200,000 housing units sit empty in a land of 4 million people. An economy that posted double-digit growth during the height of its boom is likely to shrink by as much as 7% this year.

Stock prices have plummeted, and the jobless rate may push past 10%, a stark turnaround from the days when employers had to woo scarce workers with sweetheart deals.

"It's not the fact we're in a recession. We've been through that before. It's the speed and the rapidity and the depth it has turned," said Brian Lucey, a finance professor at Trinity College School of Business. "People are shocked by that."

They are also angry.

Reports of cronyism and outright corruption among bankers and politicians fill the newspapers and airwaves. Outrage has focused on the spectacular and scandal-ridden fall of Anglo Irish Bank, which has been rocked by revelations of a secret multibillion-dollar transfer from a rival bank to hide its losses and of undisclosed loans to its former chairman, Sean FitzPatrick, who was forced to quit in December.

Last week, fraud investigators raided the bank's Dublin offices amid mounting evidence of share price manipulation and irregular loans-for-shares schemes.

FitzPatrick has shown little remorse for his industry's failures. After the government announced a nationwide emergency plan last fall to guarantee all banking deposits, he told an interviewer: "The cause of our problems was global, so I can't say sorry with any degree of sincerity and decency. But I do say thank you."

Ireland is now a land of ire indeed: Tens of thousands of protesters marched through the streets of Dublin recently to demand greater public accountability.

In Damian McKavitt's eyes, the politicians and bankers are due a day of reckoning.

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