Europe's Boom Cities Are Still Busted


Before the crisis of 2008, Dublin was Europe's wunderkind: the 'Celtic Tiger' tech boom seemed to have slowed, but real estate was booming, prices were high, and people were spending. This Irish success story seemed to reverse an age-old narrative of famine, emigration, and degrading jobs abroad. And then it all went kaput.

The financial crisis revealed the country's largest banks to be nearly insolvent, and the Dublin real estate market tumbled into the gutter faster than a drunk on St. Patrick's day, housing prices losing almost 50% in a single year. Yet the country was fast to act: the Dáil (the Irish parliament) made the banks whole despite their bad bets, in an unprecedented pro-business move that required 85 billion euros from the European Union. Now Ireland is the first country to pay back its EU loans, sparking a wave of enthusiastic praise from continental technocrats. Spain, another country beleaguered by bad banks and an imploded housing market, is poised to follow Ireland's lead. But one must only look to the current state of the real estate market and unemployment in the former boom cities of Ireland and Spain to know that 'recovery' is only a chimera cooked up by economists in Brussels.

The recent celebration of Ireland's 'recovery' has not been lost on many commentators: the New York Times ran an opinion piece entitled "Ireland's Rebound Is European blarney." On the ground information from Dublin and other boom cities of the EU crisis confirms this sentiment. Dublin's once-thriving property market has been so decimated that new suburban homes are being torn down in an attempt to maintain the value of surrounding properties. Even the affluent are often upside down on their mortgages.

Another good example of the purely theoretical nature of the recovery is the Spanish city of Valencia, once praised as a model of new urbanist principles where the starchitect Santiago Calatrava turned a dry riverbed into a landscaped cultural corridor with over a billion euros in public funds. The coastal zone around the city was quickly paved over for hotels and second homes during the height of the boom. Credit for home buying and construction financing was easier to come by than a café con leche. Yet this sector is now dried up. Because construction accounted for such an over-sized piece of Valencia's economic pie, the unemployment rate is now at 26%, and Santiago Calatrava has gone from golden boy to the man who "bled the city dry."

Other cities in Spain, Portugal, Greece, Bulgaria, and Cyprus have similarly empty spaces built during the giddy moments of the boom when the faucet for private and public lending was gushing at full capacity. Some in Europe blame the technocrats in Brussels for not monitoring credit more closely and for over-emphasizing real estate development as an economic strategy for the poorer periphery. However, as in the United States, part of the blame must also go to the under-regulated banking sector, which financed public and private projects using a risk rubric that can only be categorized as reckless.

The recent attempts to praise Ireland and Spain's new independence from EU lending is a wry little piece of magical thinking. The empty properties left from the hubris of the boom litter many of Europe's most troubled cities, where unemployment is the new normal. From abandoned suburbs like Seseña near Madrid to the never-used Ciudad Real airport to Dublin's bull-dozed 'ghost estates,' the remnants of the boom are still with us. The debt from these bad deals also haunts the pejoratively named PIGS countries (Portugal, Ireland, Greece, and Spain), and Brusselcrats would be far more honest and helpful if they included these numbers with any recent certificates of good health.