The debt crisis and beyond

His successor, Brian Cowen, was pitched headlong into Ireland’s worst economic crisis since Fianna Fáil first came to power in 1932. Although this was partly due to the vulnerability of a small economy to the impact of the global financial crisis then afflicting much of the world, it was compounded by overexpenditure on public service pay and by the necessity to establish a National Asset Management Agency (NAMA) to bail out the insolvent Irish banks, which had persisted in making grotesquely extravagant and imprudent loans to property developers. The burden of rescuing the banks dramatically escalated the national deficit. So strained were Ireland’s resources that in November 2010—even after proposing income-tax hikes and reductions in services—the government was compelled to accept a bailout of more than $100 billion from the EU, the International Monetary Fund, and countries offering bilateral aid. In response to these developments, the Green Party, the junior partner in the ruling coalition with Fianna Fáil, called for early elections in January 2011. The unpopularity of the austerity measures required to meet the conditions of the loan, along with rumours of ethical impropriety, led to a challenge of Cowen’s leadership of Fianna Fáil in mid-January 2011. He survived the leadership vote. But in a dizzying sequence of events that followed, Cowen called for an election to be held on March 11 and then resigned as Fianna Fáil’s leader, but he remained on as a caretaker taoiseach only to witness the withdrawal of the Green Party from the ruling coalition, with the likely consequence of an even earlier election.

At the end of January the Oireachtas (parliament) passed a finance bill that met the requirements of the IMF-EU bailout by raising taxes and cutting spending in an attempt to reduce the Irish deficit by $20.5 billion over the following four years. Following passage, Cowen officially called for elections to be held on February 25. In the event, Fianna Fáil—which was widely blamed for the country’s financial troubles and for the unpopular bailout—took its worst drubbing at the polls in some 80 years, capturing only 20 seats in the Dáil. Meanwhile, Fine Gael nearly became the first party since 1977 to win an outright majority, winning 76 seats, the most in its history. Ultimately it formed a coalition government with the Labour Party. Fine Gael’s leader, Enda Kenny, whose stature and popularity rose throughout the short election campaign, became taoiseach, while Labour’s leader, Eamon Gilmore, assumed the post of tánaiste (deputy prime minister).

In mid-May, Queen Elizabeth II undertook a four-day visit to Ireland, becoming both the first British monarch to visit the country in 100 years and the first to visit it since it became an independent republic.

In October the Labour Party’s Michael D. Higgins—a longtime member of the Dáil, a poet, and a former sociology professor—was elected to be McAleese’s successor as president, emerging from a crowded field that included Sinn Féin’s Martin McGuinness (who stepped down as deputy first minister of Northern Ireland to run).

In March 2012 Ireland’s political culture was rocked by the release of the final report of the Mahon Tribunal, the country’s longest-running public inquiry. The report concluded not only that former taoiseach Ahern had not been truthful in his testimony to the tribunal regarding his finances but also that every level of Irish political life had been affected by corruption tied to the scandal.

While Greece experienced widespread backlash against the austerity measures suggested by the IMF and the European Central Bank, Ireland was held up as a model of compliance. Although household spending continued to decline, consumer confidence improved as the IMF reported that Ireland had entered a period of modest economic recovery. Markets reacted negatively in late March 2012, however, when Kenny announced that he would put the EU’s newly forged pact on fiscal discipline to a popular vote. Access to further bailout funds hinged on the approval of the treaty, and Kenny’s government came out strongly in support of it. Although turnout for the May 31, 2012, referendum was low, voters approved the measure by a comfortable margin. Financial markets reacted positively as the yield on Irish two-year bonds fell by almost a full percentage point on the day the result was announced. Moreover, in July Ireland raised €5.23 billion (about $4.2 billion) on international bond markets with its first offering of long-term bonds since September 2010. On the other hand, Kenny suffered a bruising political setback in autumn 2013 when the referendum that he had championed on the abolition of the Senate—a cost-cutting measure that a was central plank of his reform platform—went down to defeat.

In 2014 the electorate, smarting from new property taxes and cutbacks that had been imposed as part of the rescue package and seeing further taxes in the future, punished the government in the midterm elections. Labour, the junior partner in the ruling coalition, bore the brunt of this chastisement as it lost its three seats in the European Parliament. In the wake of the election, Gilmore was replaced as tanaiste and Labour Party leader by Joan Burton.

The electorate’s retribution for the government was even more pronounced in the national election, in February 2016, in which voters ended the ruling coalition’s majority, with Fine Gael losing 26 seats from its 2011 total to fall to 50 while Labour dropped from 37 to 7. At the same time, Fianna Fáil returned to relevance after its abysmal 2011 showing, gaining 24 seats for a total 44. Sinn Féin increased its presence from 14 seats to 23. With no party holding a majority and no readily apparent path to coalition rule, parliament was hung and remained so for some 10 weeks. In early May an agreement was reached whereby Kenny and Fine Gael would continue to rule as a minority government with support from independents and with a pledge by Fianna Fáil (which had won policy-related promises) to abstain from key votes until 2018.

In August, after a three-year investigation, the European Commission ordered Apple Inc. to pay the Irish government €13 billion (about $14.5 billion) in back taxes plus interest. As part of a broader investigation of tax avoidance by multinational corporations operating in the EU, the commission concluded that Ireland had provided illegal incentives that allowed Apple to pay greatly reduced taxes for years. From the low rate of 1 percent in 2003, Apple’s tax rate fell to 0.005 percent in 2014. Ireland’s standard corporate tax rate of 12.5 percent was among the lowest in the world. According to the commission, Apple, by registering all of its European profits in Ireland, had avoided paying taxes in other countries across the EU in which its products were sold. Both Apple and the Irish government refuted the charges, with Michael Noonan, the finance minister, saying that it was necessary to appeal the decision “to defend the integrity of our tax system; to provide tax certainty to business; and to challenge the encroachment of EU state aid rules into the sovereign member state competence of taxation.”

Another long-running scandal eventually resulted in Kenny’s departure from office. After reporting misconduct among members of the National Police Service in 2006, a police officer became the object of a smear campaign that included false allegations of child sexual abuse. The question of what Kenny knew about the smear campaign and when he knew it, as well as the timing of his support for the police chief and justice minister, became a heated issue in February 2017. Although he narrowly survived a vote of confidence at the time, Kenny—pressured to resign both by members of his own party and by the opposition—announced in May that he would be stepping down as party leader.

In early June Fine Gael chose his successor, Leo Varadkar, the 38-year-old minister for social protection. On June 13, 2017, Varadkar, a physician and the son of an Irish mother and an Indian immigrant father, became Ireland’s first openly gay taoiseach when his nomination was approved in the Dáil by a vote of 57 to 50, with 45 abstentions. When Irish voters returned to the polls on October 27, 2018, they elected Higgins to a second seven-year term as president (with some 56 percent of the vote) and overwhelmingly approved a referendum to alter the Irish constitution to remove the word “blasphemous” from the article which stated that “the publication or utterance of blasphemous, seditious, or indecent matter is an offense which shall be punishable in accordance with law.”

Under Varadkar’s stewardship the Irish economy not only prospered but proved to be one of the most vital in Europe, with GDP expanding by more than 8 percent in both 2017 and 2018 before slowing to about 4 percent growth in 2019. Much of Varadkar’s focus during this period was on assuring that the United Kingdom’s withdrawal from the EU would not jeopardize the Good Friday Agreement. When elections for the Dáil rolled around in February 2020, however, the electorate appeared to be less impressed by the robust economy or interested in the terms of the British exit from the EU (“Brexit”) than it was exasperated by Ireland’s chronic housing shortage, epidemic homelessness, and the long waiting lists for hospital services.

In what proved to be a historic “change” election, many Irish voters showed themselves to be not only disenchanted with nearly a decade of Fine Gael rule but also to have tired of some 100 years of alternating rule by Fine Gael and Fianna Fáil. In the process, Sinn Féin upset the traditional two-party dominance of Irish politics by securing the largest share of the vote—almost 25 percent of the total first preference votes, compared with about 22 percent for Fianna Fáil and some 21 percent for Fine Gael. (The Green Party captured about 7 percent, with the remainder of the votes divided between Labour, the Social Democrats, Solidarity–People Before Profit, and independent parties.)

Offering a left-leaning program of policies that appealed to younger voters, Sinn Féin increased its total of seats in the Dáil from the 23 it had won in the 2016 election to 37. But because it only contested 42 of the Dáil’s 160 seats, it came up just short of the 38 seats allotted to Fianna Fáil, which dropped six seats from its 2016 showing. Fine Gael, on the other hand, secured 15 fewer seats than it did in 2016 to enter the new Dáil with 35 seats. None of the three parties was even close to the 80 seats needed to attain a parliamentary majority. Having entered the election with a pledge not to join Sinn Féin in coalition rule, Varadkar seemed content to lead his party in opposition, though the possibility of entering a coalition with Fianna Fáil remained as the parties hunkered down for negotiations that would determine which of them would form a government.

In June, after more than four months of talks, the two traditional centre-right parties agreed to form their first-ever coalition government, which would also include the Green Party, whose additional seven seats in the Dáil gave the coalition an absolute majority. Before lending its support, the Green Party elicited a number of policy concessions, including an increase in the government’s carbon tax and the targeting of an annual 7 percent carbon emission reduction through 2030. The arrangement called for Fianna Fáil to lead the government through the first part of a scheduled five-year term, with Fine Gael taking over at the halfway point. On June 27 the Dáil elected Fianna Fáil leader Micheál Martin taoiseach.

While the protracted negotiations dragged on, life in Ireland had been turned upside down by the arrival of the global coronavirus pandemic. On March 27 the country went into lockdown, from which it would not emerge until May. In the process Europe’s fastest-growing economy toppled into a recession, and the unemployment rate climbed. Still the Irish economy bounced back quicker than that of most European countries, and by November a predicted decline in GDP of more than 7 percent for 2020 had been reduced to a projected dip of only 2.3 percent. Having also succeeded in “flattening the curve” of the virus’s spread, the government rolled back its strict public health-driven restrictions until October, when a resurgence of the spread of the virus prompted the reimposition of a lockdown.