Building on easy money:The political economy of housing bubbles in Ireland and Spain

Sebastian Dellepiane, Niamh Hardiman and Jon Las Heras
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Sebastian Dellepiane: University of Strathclyde
Jon Las Heras: Manchester University

No 201318, Working Papers from Geary Institute, University College Dublin

Abstract: This paper undertakes a structured, focused case-study comparison of housing bubbles in Ireland and Spain, based on the selection of two most-different cases that nonetheless share a common outcome of interest. Both countries were exposed to the same set of changes in their international policy environment in the late 1990s and early 2000s, in the form of a low interest rate regime associated with the creation of European Monetary Union (EMU). The two countries have very different economic structures, different political decision-making profiles, and different relationships between the political and banking systems. Yet these two countries had the most extreme experience of housing bubbles during the 200os, and both suffered a similar construction-related economic collapse that ruined their respective banking systems after 2008. The paper argues that the decision-making taking place within their very different domestic institutional frameworks was subordinated to the fact that they shared a similar form of international vulnerability. Both were extremely open to mobile international capital during the 2000s. Their vulnerability to financialization resulted in a common experience of very rapid asset price inflation, which left both countries particularly exposed when the international financial collapse took place. The shared experience of European ‘peripherality’ meant that two countries belonging to different ‘varieties of capitalism’ ended up with very similar kinds of economic collapse.

Keywords: housing bubbles; financial liberalization; credit; Ireland; Spain (search for similar items in EconPapers)
JEL-codes: F32 F52 G21 G28 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2013-10-08
New Economics Papers: this item is included in nep-eec
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Citations: View citations in EconPapers (8)

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