Jessica Weld

Introduction

The term Home Bias can be defined as the tendency for investors to invest the majority of their portfolio in domestic equities, ignoring the benefits of diversifying into foreign equities. In a small island nation bursting at the seams with such immense pride for its achievements and its continuing ability to punch above its weight on the worldwide stage in all aspects of society, be it the arts, sport, entrepreneurial pursuits, and cultural exports it would be assumed that such pride would leak into the investment decisions of Irish residents.

The reality is that domestic holdings of public debt in Ireland have been in decline since 2005. From research published by the European Central Bank in 2021, direct and indirect holdings of government debt by resident households in Ireland have fallen from 19.5% in Q4 2005 to 9.1% in Q4 2015. I intend to explore the possible reasons for and probable issues arising for the Irish state as a result of declining domestic interest in public debt.

The Current Landscape

The Annual Report on Public Debt in Ireland 2023 has observed a national debt of €233bn at year end 2023, amongst the highest debt per capita in the developed world. This can be attributed to the state overcoming large obstacles such as the Covid-19 pandemic in recent years and the long-term devastating effects of the global financial crisis around 2007/2008 and the years of financial collapse and austerity that followed into the early 2010s.

Despite the high amount of debt per capita, Ireland can be glad of its high credit rating of AA with positive outlook from Standard & Poor’s global ratings in November 2024. This marks a low cost of current and future borrowing for the state and is an overall positive indicator of economic health.

However, Ireland’s proportion of domestic interest in its sovereign debt falls short of the Euro area average. In 2020, 49% of Ireland’s debt was held by residents in comparison to the Euro area average of 56.1%. While the Euro area as a collective displays a strong home bias, why does Ireland fall short of its European counterparts?

Attracting Foreign Investment

Ireland in its recent history has been known as a haven for foreign direct investment, mainly through the establishment of the international and European headquarters of many multinational companies in the state over the last thirty years. These companies have been attracted by Ireland’s lucrative low corporate tax rate and an abundance of incentives provided by the state via the Industrial Development Authority. The same effects can be seen from the perspective of non-resident debt holders. As the economic outlook of the state is overwhelmingly positive as seen through high credit ratings and other economic indicators, everybody wants a slice of the Irish pie.

This effect has been encouraged by Ireland’s membership of the European Union. Free-trade and the common currency within the Eurozone has reduced the costs and risk experienced by non- resident European Union holders of Irish public debt. However, this phenomenon shouldn’t be viewed as wholly negative, the higher demand for Ireland’s sovereign debt as a result of EU membership ultimately pushes the state’s cost of borrowing down.

Domestic Confidence in the Government and Economy

The lived experience and confidence a state’s residents has in its government and economy can have a considerable effect on whether they willingly choose to be debt holders for the state. This can be irrespective of factual economic performance and future outlook. In a 2020 survey by University College Dublin, it was found that 45% of Irish respondents said that they think that the government ignores rules and procedures in comparison to only one third of German and Norwegian respondents believing the same about their respective governments.

I believe that the period of austerity following the global financial crisis has contributed to this negative domestic perception of the Irish government and economy. Many residents who were negatively affected by increased unemployment and the burst of the property bubble have been left with a bad taste in their mouth and are less inclined to lend to the state. Despite factual positive information on economic performance and creditworthiness, I believe that low confidence in the government and economy amongst residents has produced a reversed home bias effect on domestic holdings of public debt.

Direct vs Indirect Debt Holdings

It’s important to examine the way through which debt holders hold their debt. This can be through direct means (being a debt holder) or indirect means (having shares in an investment or pension fund which holds debt as part of its assets). Despite having a low proportion of resident debt holders in comparison to Euro area counterparts, Ireland exceeds its competing nations in direct debt holdings.

In Q3 2020, 10% of resident debt holders of Irish public debt held their debt directly, compared to the Euro area average of 2% 2 . This displays a high proportion of domestic debt holders actively and consciously lending to the state compared to residents passively lending through their contribution to investment and pension funds. This is a positive indicator of Irish residents’ willingness to explicitly lend to the state.

Why Encourage Domestic Debt Holding?

It’s crucial to understand why domestic debt holding is so advantageous to the economy and its residents so as to fully understand why Ireland’s lack of home bias can create issues. Put simply, domestic debt-holding is a win-win for the state and its resident debt holders. For debt holders, Ireland’s residents will benefit from the returns on holding public debt as the cost borne by the government to borrow will flow back into the domestic economy rather than benefitting the economies of non-resident debt holders, producing a circular flow of cash within the state.

Furthermore, resident debt holders will be less likely to demand higher costs on their lending to the state as this will directly affect them negatively. Be it through increased taxation or reduced public expenditure as a knock-on effect.

Currency risk is another avenue that should be explored when it comes to non-resident debt holding. In order to be more attractive to non-resident lenders, the Irish state issues some debt, such as the Euro-Commercial Paper Programme in US Dollars, Great British Pounds, and other currencies on request. Fluctuations in value of the issuing currencies against the Euro can cause relative changes in the cost of borrowing for the state which creates an even stronger case for the state to prioritise domestic debt holding in euros.

Conclusion

It is a certainty that the Irish economy is missing out on the wealth of advantages that come with a high proportion of resident debt holders. The state needs to capitalise on its higher-than-average amount of direct debt holders and transform it into a large-scale new wave of financial patriotism by encouraging residents to lend to the state.

Some measures that can be taken include increasing financial literacy amongst the population about the financial instruments available to them to invest their funds which can increase awareness of sovereign debt holding and its win-win advantages for debt holders and the wider economy.

The state could also explore possible tax incentives to encourage domestic debt holding alongside regulatory requirements for pension and investment funds to hold certain amounts of public debt which will increase indirect domestic holdings of public debt.

It’s time for the state to encourage the Irish people to channel their strong Irish pride into their economy for the benefit of themselves and the generations of Ireland’s children to come.

Mia Frishberg – Second Place

Introduction

Ireland stands at a fiscal crossroads: with rising assets and plateauing liabilities, the choices the country makes today will shape its economic trajectory for decades to come. In the past years, Ireland has seen the value of their assets rise while their debt stays stable. According to the 2024 midyear update, the country is seeing a stable 1.5% average interest rate on its €221 billion of debt, expected to remain constant for the next 3-4 years (Smyth, 2024). 1.5% is an exceptionally low interest rate by historical standards, which indicates that the maintenance and issuance of debt is manageable and cost-effective. This rate also suggests confidence in the government’s fiscal management and creditworthiness, and allows the government to plan its policies for the next few years. Compared to the United States, which faces a 4.61% rate for its 10-year bonds (“Fiscal…”, 2025), Ireland is facing much less of a fiscal challenge, and can take advantage of this to strategically grow its economy. Yet, despite the country’s prosperous balance sheet, 70% of younger generation Irish have expressed interest in emigrating to other countries due to the cost of living crisis and a lack of opportunities (National Youth Council of Ireland, 2024). Nonetheless, there are two main options to the
government: to shrink its balance sheet, or to continue operating with a surplus and decide how best to allocate their extra funds. There are nuances within both options which I will break down in the following paragraphs. I argue that while all options have their merits, the best option for the National Treasury Management Agency (NTMA) is to invest in the future, specifically focusing on investments in affordable housing and innovation in order to foster a productive and liveable nation for its residents.

Background and Current Situation

Ireland’s economic history is a study in extremes. Following independence in 1922, the country endured decades of poverty, emigration, and economic stagnation. The Celtic Tiger era of the 1990s saw an economic boom driven by low corporate taxes and foreign investment, making Ireland one of the fastest-growing economies in Europe. However, this prosperity came at a cost. The 2008 financial crisis devastated the Irish economy, leading to mass unemployment and rising debt. Recovery began around 2014, ushering in the Celtic Phoenix era (McLaughlin, 2024). Although economic growth resumed, it exacerbated a housing crisis that persists today. By January 2023, the average house price in Dublin was nine times the average wage (MacCoille, 2023), creating a cost-of-living crisis that has left many Irish people feeling their country is unliveable. Economic Youtuber “The Invisible Hand” created a video touching upon these issues, titled “Why Living in Ireland is Impossible”. He cited a lack of housing supply, increasing demand from refugees and immigrants, and a lack of motivation for construction companies to build new affordable products as the drivers of this housing crisis (The Invisible Hand, 2025).

The Case for Shrinking the Balance Sheet

One option for the government is to shrink its balance sheet by selling state-owned land, privatizing semi-state companies, or reducing involvement in sectors like healthcare or utilities. This would simplify public finances, reduce risk from volatile assets, and lower maintenance costs. It could also free up capital to pay down debt or fund immediate priorities. Compared to other nations, Ireland owns relatively little public land.. In contrast, countries like the United States and Russia own about a third of their landmasses, with significant public holdings used for energy production or national parks. Ireland’s public lands, however, are concentrated in urban areas, often housing public infrastructure like schools (Irish Independent, 2011). The government also has stakes in critical industries, such as energy, telecommunications, and transportation (Wikipedia, 2025). Selling state assets would further reduce the country’s already modest debt burden, currently financed at an average rate of just 1.5%. This would help insulate the economy from future shocks or rising interest
rates, ensuring long-term stability.

Risks of Shrinking the Balance Sheet

However, divesting from public assets is not without risks. History offers cautionary examples of the unintended consequences of privatization. The case of the privatized Eircom is particularly instructive. When the government sold Eircom in 1999 for €6.3 billion, private investors prioritized short-term profits over long-term growth. This led to underinvestment in infrastructure and massive layoffs, ultimately causing the company’s value to plummet to just €39 million by 2011 (The Irish Congress of Trade Unions, 2024). Privatizing utilities or healthcare could similarly backfire, leading to higher costs for consumers and reduced access to essential services. In the United States, for example, a Stanford University study found that privatized hospitals reduced access to care, particularly for low-income patients (Crawford, 2023). Similarly, Cornell University research revealed that water prices rose significantly after utilities were privatized (Dean, 2022). Given these risks, shrinking the balance sheet may not be the most prudent choice for Ireland at this time.

The Case for Strategic Reinvestment

Rather than selling off public assets, the Irish government should use its strong fiscal standing to make targeted investments in solving the country’s most critical issues, with housing being at the forefront. The housing crisis in Ireland has made owning or renting a home increasingly unattainable, as rising demand and limited supply have sent property prices soaring. Investing in affordable housing would directly address this crisis while delivering lasting social and economic benefits. Finland’s “Housing First” initiative provides an inspiring example, where government-built affordable housing significantly reduced homelessness and stabilized the market (Dietz, 2023). Implementing a similar program in Ireland could curb emigration, improve living conditions, and restore confidence in the domestic housing market. Beyond housing, Ireland’s resources and geography make it uniquely positioned to lead in green energy. By expanding infrastructure for wind, solar, and tidal power, the government could reduce energy imports, create jobs, and advance its climate goals. Finally, investing in innovation and technology would strengthen Ireland’s economic future. While the country has become a hub for multinational corporations like Google and Meta, nurturing local startups and funding research in fields like artificial intelligence and biotechnology would foster homegrown industries. These efforts would diversify the economy, create high-paying jobs, and retain young talent, offering a more sustainable path to long-term prosperity.

Implementation Challenges

Implementing these investments would require careful planning and coordination. The government must ensure that housing projects are built in areas with adequate infrastructure and that renewable energy projects comply with environmental regulations. Additionally, fostering innovation will require collaboration with universities, businesses, and research institutions. These challenges are significant but surmountable, especially given Ireland’s current fiscal strength and international credibility.

Conclusion

Ireland’s fiscal stability provides a unique opportunity to address its most pressing challenges. While shrinking the balance sheet might offer some benefits, the risks to public welfare and long-term growth outweigh the potential gains. Instead, the government should focus on strategic reinvestments in affordable housing, renewable energy, and innovation. These investments would address immediate social and economic issues while laying the foundation for a more sustainable and prosperous future. By prioritizing its people and its future, Ireland can ensure a brighter path forward.