Learning from the crises of days gone by

Despite the unprecedented nature of the Covid-19 pandemic, past crises have also rocked the livelihoods and finances of Irish people.
So how have we fared financially under past emergencies?

1. World War 1
“Like Covid, World War 1 (WW1) was completely unexpected,” said Eoin McLaughlin, a senior economics lecturer with University College Cork . “The war came out of the blue and threw everything upside down.”

Ireland was still part of the UK during WW1. “There was a huge increase in borrowing [by the UK] to pay for WW1 and as a result, there was a huge overhang of debt after the war,” said McLaughlin. It took the UK almost one hundred years to repay the debt it took on during the Great War.

Covid has also forced countries to take on huge debt. The Irish Government spent €19bn more than it earned last year – largely as a result of the €17.9bn it spent fighting the pandemic last year. The Government’s bill for Covid continues to climb and this country will be repaying the ensuing debt for many years to come.

Like Covid, there was a huge build up of savings amongst certain elements of Irish society during WW1.
“Bank deposits from households and businesses roughly doubled between 1913 and the end of 1918,” said McLaughlin.

“However there seems to have been a slight decrease in savings in the Post Office Savings Bank (POSB) between 1912 and 1918. The POSB was very much the working man’s savings bank – indicating that the savings of the working man fell during WW1.
“There were regional differences [in the extent to which people could save]. Some parts of the countryside – such as Munster – saw an increase in savings.”

Like Covid, WW1 hit some more than others. Those in reserved occupations – occupations considered important for the war effort – had jobs.
“Some examples [of reserved occupations during WW1] in rural Ireland included farmers; while in towns and cities, it included the transport and factory workers who made uniforms and who were involved in the manufacture of munitions,” said McLaughlin.

There was a big divide between the fortunes of those living in the countryside and cities during WW1, according to McLaughlin.
“WW1 was probably the best time for Irish farmers since the Napoleonic Wars of the early nineteenth century,” said McLaughlin.

“The Irish farmers were sending all sorts of food to the UK during WW1 as the UK was desperate for food for the civilian population as well as the army.”
Most of the Irish men who enlisted for WW1 came from urban areas – such as Dublin and Belfast, according to McLaughlin. Many of these men are likely to have joined the war effort as it would have been their best, or possibly only, opportunity to get work.

Unemployment, underemployment and low wages were powerful recruiting agents for WW1 in Ireland, according to authors Erhard Rumpf and AC Hepburn in their book Nationalism and Socialism in Twentieth Century Ireland. “This may explain the predominance of urban recruitment [for WW1],” said McLaughlin.

The wages of rank-and-file soldiers however were very low. “A lot of the families of the rank-and-file soldiers serving in WW1 would have struggled to make ends meet – due to the combination of low army wages and high inflation,” said McLaughlin.

Inflation surged during WW1. Between 1900 and 1913, general inflation in Ireland was 2.5pc a year on average – however, between 1914 and 1918, inflation averaged at 15.6pc a year, according to McLaughlin.

Agricultural prices rose even more sharply than this. Between 1900 and 1913, agricultural price inflation averaged at 1.73pc a year; between 1914 and 1918, it averaged 17.6pc a year.

“This high inflation put pressure on families,” said McLaughlin.

2. World War 2
Although Ireland was neutral during WW2 – and independent of the UK, many Irish people struggled to get by during ‘The Emergency’.

Supplies of food were often low. Rationing was in place for items such as tea, butter, sugar, flour and clothes. There were severe shortages of bread. Small children who suffered from malnutrition became ill with rickets – a disorder often caused by lack of Vitamin D.

A black market emerged during the war – with many people dabbling in it to get items they were desperate for.
Petrol was also rationed during WW2 and as the war went on, it became more scarce – forcing many private cars off the road.

Gas and electricity supplies were also cut during the war – and people had to limit use of their gas cookers each day. Many relied on turf for fuel. Despite its neutral status, Ireland was bombed a number of times during WW2.

3. The 2008 financial crisis
The 2008 financial crisis lasted for almost five years. At the height of the crisis in 2011, almost 445,000 people were on the dole. Hundreds of thousands of Irish people emigrated between 2008 and 2013.

The collapse of the Irish banks, the bust housing market and the ensuing economic downturn were at the heart of much of this emergency’s unemployment.

Like Covid, many workers saw their pay docked during the financial crisis. Unlike Covid however, Irish people were hit with tax hikes and welfare cutbacks during the financial crisis – though such measures may well follow Covid once the country emerges from the pandemic.

Construction ground to a halt – leading to the so-called ‘ghost estates’ in many counties around Ireland. Many homeowners struggled with debt, fell into mortgage arrears and worried about losing their home.

The collapse in house prices added to their woes – about 230,000 homeowners were in negative equity in 2011.
The consequences of the 2008 financial crisis are still being felt in Ireland, according to John Turner, professor of finance and financial history at Queen’s University Belfast.

“The financial crisis has impacted the banks’ ability to lend – and this in turn has impacted people’s ability to buy houses as the rules around borrowing are much more stringent,” said Turner.

The Central Bank’s lending rules are designed to protect borrowers from taking on mortgages they cannot afford – or which could leave them in negative equity should there be a property downturn. However, many people find it impossible to buy a home under those rules – particularly if single or on an average wage.

“The impact of the 2008 financial crisis is still being felt globally,” said Turner. “A consequence of that crisis is that we’ve been living in a low interest rate environment for many years. That has had huge implications for people’s pensions as there have been low returns on pensions.”
Some of those saving up for retirement have also been hit by the negative interest rates of recent months.

4. The Famine
The Irish Famine of 1846 to 1851 is likely the worst crisis this country has, or will ever, face.

More than one million people – almost one-eighth of the entire population of Ireland at the time – are estimated to have died from starvation and disease during the Famine.

About one million people emigrated during the Famine – and some estimates put this figure as high as two million. The population of the island of Ireland is still below what it was before the Famine.

Just as Covid has shown the value of having savings to tide you through tough times, savings proved a lifeline to many of those who survived the Famine. “During the Famine, it was the poorer people who died,” said McLaughlin. “The better-off used their savings to emigrate.”

A number of bank frauds were uncovered in Ireland in 1848 – at a time when many people were desperate for their savings.
“These frauds lead to a loss of confidence in the savings banks and a run on the savings banks,” said McLaughlin.

“There was a run on several savings banks, such as the Limerick, Drogheda and Belfast Savings Banks, which resulted in a 38pc drop in the savings held by Belfast Savings Bank for example. People never forgot that their money went missing during the Famine.”

5. Spanish flu
The Spanish flu arrived in Ireland in May 1918 and lasted until the middle of April 1919. About 800,000 people in Ireland were infected with the virus – and around 23,000 of them died, though this is believed to be a conservative estimate.

Many young families were left without their breadwinner as a result of the Spanish flu – with some losing their homes as a result. While many businesses were forced to close during the pandemic, this was largely due to staff illnesses and deaths – rather than an order from the government.

Despite the devastation caused by the Spanish flu, that pandemic did come to an end – as did all the previous emergencies that hit this country. As we emerge out of the third lockdown, this should give us all hope.

From hoarding to relic coins: how Covid may have changed our finances forever

Goodbye to cash
Many of us have stopped using cash throughout the Covid crisis – and the increasingly cashless society that has developed throughout the pandemic is likely to be here to stay.

“Retailers are all set up now for card payments – including small card payments,” said John Turner of Queen’s University in Belfast. “More bank branches are likely to close due to the increased cashless society.”

Although cashless payments are often convenient, they don’t suit everyone – and a world without the option of paying in cash may not be an ideal one.

Hello to inflation
Inflation has been low throughout the Covid pandemic. However, there are concerns that it could pick up after the crisis.

“There’s a hoard of savings now which could push prices up when people start to spend money again,” said Eoin McLaughlin of University College Cork. “Some people are worried about the risk of inflation after Covid – older people on fixed pensions, for example, are worried about the impact that higher inflation might have on them.”

There are fears that central banks could increase interest rates in response to any surge in inflation – as this would push up monthly mortgage bills for many homeowners.

Rising interest rates would also make it more expensive for the Government to borrow money and to refinance existing borrowings. This would likely put pressure on the country’s public finances – and in turn lead to tax increases and cutbacks. A rise in interest rates, however, would mean that savers could finally get a better return on deposits.

Goodbye to risk-takers
Many people are likely to be more cautious with their money after Covid – as the pandemic has highlighted the importance of having savings in the wings for times of emergency and low income.

“People who have lived through difficult macro-economic times are less likely to take risks, they’re more likely to make better decisions – and they may be more likely to hoard,” said Turner.

Hello to more wealth inequality
“Covid is going to stoke wealth inequality,” said McLaughlin. “Some people have been able to save a lot over Covid – any househunter [who saved a lot over the pandemic] who wants to buy a house will buy one [after Covid]. So the price of houses will likely go up and the prices of other assets will go up.

“There are other people then who have had to run their savings down over Covid to pay their bills, to support adult children who were out of work, and so on.”

Remote workers: make yourself at home

The pandemic has led to huge changes in attitudes towards remote working – and so, post-pandemic, many people will be able to earn a living without spending all of their time in the office.

“In many cases, working from home is making people more productive – so employers like that,” said Turner. “Some employees like remote working as they don’t have to commute.”