In the aftermath of Ireland's decision to seek a rescue from the European Union and International Monetary Fund, two questions linger. The first is why wasn't this crisis anticipated. The second is which country is next. The European Union has struggled to contain its members' economic difficulties; thus far it has failed. There is little hope that Ireland's troubles will be the union's last.
During the 1990s, a roaring economy earned Ireland the name of the "Celtic Tiger." GDP growth averaged 8.4 percent from 1994 to 1999, a product of both a rebound from depression in the preceding decade and the application of reform policies that awakened a slumbering economy. One of Europe's poorest countries was transformed into one of its showcases.
Boom begat excess. Low interest rates fueled excessive lending, inflating an asset bubble in real estate. As that bubble deflated, courtesy of the global slump two years ago, banks struggled as collateral for loans disappeared. The government, which had relied on property taxes for a substantial part of its revenue inflows, was similarly constricted just when it needed even more money to shore up its faltering banks.