The Irish Bailout: When resolve breaks down
Abstract: Much has been said about EU-wide implications of sovereign debt crises, but less attention has been paid to external pressure on the countries experiencing financial shortage. This paper examines the impacts of EU level pressure and investors’ perceptions on the 2010 Irish bailout. Using cross-sectional economic comparison, process tracing and content analysis, I examine the conditions under which government resolve might collapse in the face of external pressure and adverse effects of interdependency. Process tracing illuminates the effects of EU level pressure and of investor perceptions on the timing of the bailout. Economic indicators and content analysis help capture perceptions. Unlike studies that have explained debt crises by domestic dynamics and economics, this multimethod research identifies the causal role of external political dynamics. Absent a lender of last resort, Greece’s indebtedness decreased confidence in the Eurozone, and instigated the fear of contagion. EU members pressed for an Irish bailout to signal investors that the Eurozone remained under control, and to secure their assets on Irish markets. The Irish case tells us about the limits of public policy, as well as significance of trust and perceptions in financial crises.
Keywords: Ireland, Sovereign debt crisis, Interdependency, Investor perception, European Monetary Integration