1) Pre-2008, banks were flooding the economy with cheap money,mainly for property. They were doing this because there was an international bank lending bubble, so cheap money was sloshing around world banking markets. Lending it out and getting a return was a piece of cake.
2) People in Ireland were spending this borrowed money (€40 billion a year at its peak), and about €15 billion of that spending was finding its way back to the Exchequer in various taxes, everything from income tax to VAT to stamp duty. That €15 billion a year was also creating enough economic activity to support about 250,000 jobs - mainly in the property sector, but also in retail.
Are you with me this far? Let me know if you're not.
3) The international bank lending bubble burst. Suddenly the banks couldn't keep rolling over that cheap money, suddenly banks were no longer lending to each other, because no bank trusted the assets of any other bank, because they knew how shaky their own assets were.
4) This meant that even if letting the Irish banks fail would have no negative consequences, or even if there was a cost-free way to rescue the Irish banks, that €40 billion a year in cheap money that those banks had been borrowing on the international markets and pumping into the Irish economy, was GONE. GONE. Because banks were no longer lending to each other at all, as they were all scared sh*tless.
5) So, before any tax rise or spending cut, there's already €40 billion a year less economic activity in Ireland each year. That means that those 250,000 jobs that were supported by all that borrowed money had no means of support anymore. Suppose you build houses for a living. If nobody can borrow money to buy a house, then you're out of business, right? Suppose you sell furniture for a living. If people are no longer buying houses, they won't be buying funiture either. So that's you out of business too. Remember how you used to take your wife out for dinner every Friday night? Well now you're out of business, so you can't afford that anymore. Now the restaurant is struggling as well.
You still with me?
6) The government of the day was using that €15 billion a year in windfall tax revenues (remember the €15 billion) to pump up public sector pay, to pump up all welfare payments, and to cut taxes. All in order to get re-elected, which it did. But even during that bubble, it was barely balancing the budget. So as soon as the bubble burst, there was a deficit of €15 billion, and the increases in unemployment caused by the bubble money vanishing increased welfare and health costs, by about €5 billion. So there's your budget deficit of €20 billion a year, right there.
7) By about 2009 we were spending €60 billion, and taking in about €40 billion. That's not sustainable. We tried borrowing, but nobody will lend to you for long with figures like that, because they'll correctly calculate that if you don't fix your finances, they'll never get their money back. So first our cost of borrowing rose to reflect that risk, and then the markets just said no. So the government of the day first had to increase taxes and cut spending. But what they did wasn't enough, so in order to be lent money from the IMF/EU, we had to cut more spending and raise more taxes.
That's it, basically. And it was tough, but it worked. But the key point, in terms of your understanding of all this, is point 4). Even if rescuing the banks had been free, we would still have had to do all this.
Finally, we are not in a decade-long, ongoing economic depression. The economy has been growing strongly for about 5 years now. The evidence is everywhere, you just refuse to see it.
"So how are things at the Campaign for the Freedom of Information, by the way?" "Sorry, I can't talk about that"
Slán to Care. The Fine Gael way.
"Always do right. This will gratify some people and astonish the rest." Mark Twain
“When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes. Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.” Napoléon Bonaparte