Irish economy is getting stronger seeing a miserable decade of fiscal retrenchment after the end of the 1980s. The country was returning to growth post emigration peaked in 1989. Squeeze on public finances in the late 1980s was a silly expansion in the second half of 1970. It left the country indebted with high unemployment. In the year 1989 and 1990, Ireland’s output grew by an average of more than 5 per cent.
The Berlin Wall fell at the end of 1989, the incident was followed by German reunification which a few people had expected to see happen in their lifetimes. The government of Germany had no plan to deal with the situation. Hence to bring the solution to the challenges of unification worked out very steadily.
To deal with the situation, German government immediately integrate East Germany into a unified German economy. This became possible as the population of East Germany was only a quarter of West Germany. If it was not less than West Germany then absorption would have proved very difficult. For large population of both East Germany and West Germany, this was a painful decision. Many East German public servants were ill-equipped for the new world, many inefficient factories closed, so unemployment rose in East Germany.
Then government of Germany began a huge infrastructure programmed with the help of borrowing which resulted in inflationary pressures. So, the Bundesbank raised interest rates by 2.5 percentage points to choke off rise in price. As Ireland was the member of the European Monetary System (EMS) alongside the UK and other EU countries, so it was general that if German interest rates rose, they also rose across the EMS, including in the country. It was appropriate for the German economy not for the rest of Europe.
The rise in German interest rate would have a serious impact on the then very indebted Irish economy, it was suggested by a 1991 ESRI study. As per other studies, the rise in interest rates led to much lower growth for the UK and France. EMS’s non-German members have left the straitjacket of this particular monetary arrangement to set their own interest rates. As a result, the UK crashed out of the EMS in September 1992 leaving a permanent scarring effect on perceptions of EU.
Hannah Weber is a seasoned journalist with nearly 10 years experience. While studying journalism at FernUniversität Hagen, Hannah found a passion for finding engaging stories. As a contributor to Deutch News, Hannah mostly covers human interest pieces.