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This paper takes a multidisciplinary approach to analyze the current debt crisis in Ireland. It briefly reviews Irish economic performance from 1980 to 2008 and in particular the Celtic Tiger years. The paper looks at changes in the Irish money supply and its contribution to the Irish housing bubble and the subsequent economic problems facing Ireland. An estimate of the negative wealth effect in Ireland since 2007 is made. Given that Ireland is a small open economy, a number of other factors which are both domestic and international are considered in an attempt to explain what has happened in Ireland, where might Ireland go from here and what lessons can be learnt. These factors include: the theory of political economics, the principal-agent problem, the theory of optimal currency areas, the Balassa Samuelson effect, the dynamics of a capitalist economy, neo-liberalism, European monetary integration, international bond markets and ‘insurance’ that was sold to cover a Eurozone breakup. The Irish culture is considered to differentiate Ireland from other EU countries, in particular, Portugal, Italy, Greece and Spain.

Ireland experienced relatively unprecedented economic growth from the mid 1990s until 2007. Since then, Ireland has experienced a severe economic crisis which has seen it needing a bailout from the IMF/EU/ECB. This paper initially reviews the years of the ‘Celtic Tiger’ – highlighting some of the main factors that influenced Ireland's economic development during this time. The paper takes an alternative viewpoint to analyze the Irish debt crisis.1 Significant emphasis is placed on the movements and the management of the Irish money supply. Political factors are considered, along with the dynamics of International Capital Markets and the Eurozone currency union. Several analogies are used to highlight the mistakes that were made which contributed to the debt crisis and to highlight flaws in existing economic theories and systems. Psychological and cultural factors are also considered. Possible future scenarios for Ireland are also discussed.

In Ireland, the unregulated bad bacteria (Irish banks) were allowed to run riot by a hugely flawed regulatory regime, and they grew to an extent that they turned into a cancer cell. The economic and monetary problems were wrongly diagnosed and this contributed to a wasteful use of the resources that were available for remedial action. The ‘oxygen’ that was pumped into the Irish banks gave the patient a type of morphine high. Ireland has decided to stay in the Euro (the shoal) – rather than risking it on its own. Ireland's problems and those of other countries can be traced to a dysfunctional national and international financial system. There has been a relatively undiagnosed money supply bubble both in Ireland and in most other developing economies – which has been mistakenly diagnosed as a credit crisis. It could be argued that the international monetary authorities have inherited a house of cards – and it is unfortunately in their personal interests to continue building it. Will this house of cards fall down? Is the US behaving irrationally as it is losing its hegemonic power in the same way that Britain did in the 1920s – actions which could be argued to have caused the Great Depression. There are likely to be dramatic times ahead for Ireland.