Ireland - 2005 Article IV Consultation - Staff Report; Staff Supplement; And Public Information Notice on the Executive Board Discussion (Electronic book text)

1. Ireland's ongoing painful adjustment reflects the unwinding of critical internal imbalances. Since the start of the decade, and especially from 2005 to 2007, easy credit fostered a property bubble, bank exposures to property lending soared while reliance on wholesale funding intensified, and international competitiveness was compromised as wages climbed rapidly. On all these dimensions, Ireland had become remarkably vulnerable (Figure 1). Yet, dazzling growth and buoyant public revenues prompted tax reductions and expansion of public expenditures that have proved unsustainable. Various commentators and the IMF in its Article IV consultations did warn that the seemingly-unstoppable growth masked serious imbalances, including the fragility of public finances.