Feeling the Pain As Irish Property Values Plummet

"Without a stable banking system, we have no economy and no prospects. That is how serious the situation was," Ireland's prime minister, Brian Cowen, said after the plan was announced. "There is no doubt that this is a defining moment in our nation's history."

European leaders, who initially blamed their economic problems on contagion from the United States and its banks, are increasingly acknowledging that their own banks have been guilty of the same dangerous excesses -- with tens of billions lent for property purchases that have gone sour.

Irish economists and political leaders said much of the problem has resulted from reckless lending with virtually no down payments required. In many cases, banks were lending 100 percent of the value of property.

"This didn't fall from the sky. There are people who are up to their necks in profligate and greedy lending," said Ruairi Quinn, a senior Labor Party official.

Marie Hunt, director of research at CB Richard Ellis property consultants, said that when banks were handing out loans at 3 percent interest, and property values were rising 20 percent a year, it "looked like a no-brainer" for everyone to become a builder or investor.

Massive developments sprouted in once-sleepy Dublin suburbs. And in Ireland's fabled green countryside, "For Sale" signs became as common as sheep, as farming families offered up land to developers who could not seem to buy it fast enough.

The warp-speed construction of homes, offices and shopping malls led to a glut. Hunt estimated that commercial property values have dropped about 35 percent from their peak in 2006 and that residential home values are down about 25 percent.

The construction industry, a vital sector of the economy that employs one in eight people, has slowed down considerably. Joblessness has risen to 6.3 percent. The number of people claiming unemployment benefits rose at a higher rate in the past year than at any time since 1967.

In Dublin, thousands of housing units are empty. Buyers used to line up overnight for the chance to bid on newly offered properties. Now sellers are slashing prices and throwing in free appliances.

"People now look back on the 10 to 15 years leading up to 2006 as the Golden Age," said Geoff Tucker, an economist at the Hooke & MacDonald real estate firm. "Things are different now. There is a huge amount of uncertainty."

The growth in the Irish economy in the past two decades has created solid new wealth, and international corporations continue to open offices in a country that has transformed irreversibly from its agrarian roots.

Google, Yahoo and eBay have corporate headquarters in Ireland, and Facebook announced this week that it plans to open a Dublin headquarters.