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

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 decisionmaking
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