Page last updated at 07:48 GMT, Saturday, 25 October 2008 08:48 UK

Irish house of cards comes down

By Ray Furlong
BBC News, Drogheda

Dave Jones in the Smithdown Cafe
A drop in building work has meant fewer customers for Dave's cafe

As the bacon rind turns a crispy brown colour, Dave Jones gives it a generous extra splash of oil.

The food at the Smithstown Diner, a small roadside cafe near Drogheda, is high on grease - the builders who come here like it that way. But lately business has dropped.

"It used to be really hectic in here. Now look," he says, gesturing at rows of empty plastic seats.

The Smithstown is popular with what the Irish call "breakfast roll man," building workers in white vans. This morning, there are just two.

"Times are hard, a lot of boys are being let go," says 40-year-old Robert Daley, who runs an aluminium fitting business.

"We do mainly big projects - developments of shops, offices and flats," he says. "We're just finishing one, so we're busy at the moment but there's nothing else coming up."

His employee, Tony King, nods over his fried eggs and black pudding.

"We're really feeling the pinch for the first time, because you know there's nothing else out there.

"In the worst scenario I could go to England - but it's pretty quiet over there too."

Empty houses

Tony is not the only person in Drogheda talking about working abroad. A number of people mention Australia as a possible destination.

Estate agenct Giles Belton in Termon Abbey estate
Giles Belton says house prices have fallen by about 30%
The Irish thought their Celtic Tiger economy had put an end to generations of emigration. It is not back yet, but the fact that people are talking about it again is a sign of how bad things have got.

Ireland is the first country in western Europe to officially fall into recession, defined as two consecutive quarters of negative economic growth.

Places like Drogheda, a commuter town near Dublin, have been particularly hit.

During the unprecedented boom years, the population here grew by a third. Now, it is an unemployment black-spot - ringed by new developments with empty, unsold houses.

Giles Belton has been an estate agent here for 20 years. He took me to the Termon Abbey estate to show me the problem.

"This is quite typical of any of the new estates that have been built in the Drogheda area," he says.

"At the height of the market these properties were selling exceptionally well. A lot of people were buying second, and third, and fourth houses. There were record breaking prices."

"Now, prices are down by about 30%."

The property collapse has combined with the global financial crisis to create what some see as a perfect storm hitting Ireland's banks - whose loan books are groaning with property-related debt.

Earlier in October, the government announced a scheme to guarantee deposits in the banks to prevent a run.

Pensioner protests

Now, Dublin is buzzing with speculation that this will not be enough - and that a British-style buy-out of top banks will be needed.

It is estimated that Irish banks need an additional 10 to 14bn euros and that some may have to merge.

A pensioner gestures at protest outside Leinster House in Dublin (22/10/2008)
Thousands of pensioners protested against plans to cut health spending
Shares in the top four banks have tumbled, but at a banking conference in Dublin this week Finance Minister Brian Lenihan insisted that buying stakes in the banks was "the last option".

The government would have trouble paying for it.

Last week it unveiled its biggest budget deficit in 20 years - despite the budget including tax rises and cuts in spending on education and health.

The latter included cuts in free health provision for the over 70s, and brought a huge revolt by backbench Fianna Fail MPs that led to a partial, but nonetheless humiliating, climb-down by the government.

Prime Minister Brian Cowen had his authority undermined - looking shocked and angry in parliamentary exchanges.

Taunted for being "cruel and callous" by the opposition, he shouted back: "You call me callous - call me any names you like. I'll continue to provide leadership in the solution of problems".

But the following day, despite the U-turn, 15,000 pensioners converged on parliament in a day of protest.

Because our economy was so heavily dependent on building, we suffered
Dominic Hannagan, Labour MP
According to Ray Kinsella, professor of banking at University College Dublin, it shows that "the financial crisis can and does morph into an economic crisis".

"The ability to fund public services is undermined. The government have had to introduce a budget to cope with this astonishing turnaround, and we haven't had to do anything like this for a generation," he says.

"It's difficult, it's protracted, and it's painful."

The buskers in Drogheda know this. They line the high street, but do not have many coins in their hats.

Local senator Dominic Hannagan, from the opposition Labour Party, says the crisis does have international roots, but that the government is also to blame.

"The government relied far too heavily on the building trade. So when credit became difficult to get, when mortgage rates went up, that area suffered most. Because our economy was so heavily dependent on building, we suffered.

"We've been telling the government to diversify the economy for years. They didn't, and now we're suffering."

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