Celtic Tiger

10 reasons Ireland economy is in a great shape

At the turn of the 1990s and 2000s, Ireland was able to carry out a phenomenal modernisation of its economy

Ireland got the nickname “Celtic tiger” back in 1994 when Morgan Stanley’s economist Kevin Gardner noted the high economic growth rates in this country, comparable with those of East Asian tigers (South Korea, Singapore, Hong-Kong and Taiwan whose economies were developing at a high pace during the ’80s and the first half of ‘90s). The period of rapid growth, low inflation and declining unemployment in the late 1990s was called the “Irish Economic Miracle”.

The country has changed beyond recognition, it has not only surpassed Britain in terms of per capita income — its neighbour and the former metropolis, but also almost all other European countries. For centuries, Ireland was a poor outback, whose population massively emigrated in search of a better life overseas, but by the beginning of the 2000s, it had turned into a lodestone for migrants. Descendants of Irish emigrants from the United States or Australia and migrants from European countries, from Poland to Spain, both started to reach Dublin.

Briefly about components of success

1. Iranlad has conducted major reforms in the education system, and the government has significantly increased expenditure on it. In particular, technical education and universities have been greatly expanded. Technical colleges were created throughout the country, the graduates of which met the requirements of foreign investors.

2. Tax rates have been reduced, especially for business. During the 1990s, corporate income tax in Ireland was 10–12.5% ​​- very low by Western European standards.

3. In 1973, Ireland entered the Common Market with Denmark. Joining the EEC has noticeably improved Ireland’s economic outlook, opening up new markets for international trade. Indeed, by the beginning of the 1970s, about 90% of Irish exports was focused on Britain market, despite half a century of independence and trade wars with neighbours. Besides, being one of the poorest regions of the EEC, Ireland began to receive funds from Brussels for infrastructure development and market reforms. For a poor country, this meant the emergence of opportunities for real modernization.

4. In 1987, the government managed to break the black line in the history of the country: supported by both key parties — Fianna Fail and Fine Gael — the “Tollot strategy” (named after the town where the negotiations were held) provided for economic reforms, tax cuts, privatization, reform of the social sphere, increasing competition and reducing public debt.

5. In addition to low taxes, the government offered subsidies and investment capital (through the Industrial Development Agency) for large foreign investors. Technology sector companies such as Dell, Intel, Microsoft, and later Google, have invested tens of billions of dollars in Ireland, creating manufacturing facilities and service centres. Education reforms, carried out several decades earlier, significantly increased technical skills in the labour market, so Ireland was in demand among technology companies that invested in pharmaceuticals, electronics and information technology. On top of that, the government agency Enterprise Ireland offered financial and technical support to new technology companies, many of which were created by foreigners.

6. The development of a financial centre in Dublin led to the creation of about 15 thousand jobs in finance, accounting, management and law. This has made the Irish capital a prominent regional financial centre within the EU. Irish banks began to go beyond the country, especially they started to compete in Britain. They offered customers lower interest rates on loans, especially mortgages, which was possible due to lower interest rates by the ECB compared to Bank of England rates. Cheap loans from Irish banks caused a local boom in the Northern Ireland real estate market.

7. In addition to the successful industrial and tax policy of Ireland, EU subsidies also played a vital role in Irish success. Since 1973, Ireland has received $ 60 billion in net subsidies through structural funds of the European Union, which were mainly spent on education and physical infrastructure: roads, bridges, ports. This increased the productivity of the Irish economy and its attractiveness to foreign investors. Membership in the EU opened up a huge new market for Irish goods and services, which allowed reorienting the trade from Britain to other European countries. This turned out to be important for foreign investors who were able to sell their products not only in the market of a small country but throughout the EU.

8. Last but not least, geography and history helped a lot for the Irish economic miracle to become true. The location in the Greenwich time zone allowed employees of the Irish divisions of American companies to perform work while their colleagues are still sleeping. This was especially attractive for US companies with large legal and financial departments. For example, an Irish lawyer could work on a case in the morning, handing the case over to a colleague from the United States later in the day. And this works just fine.

9. American companies received guarantees from the government that it would not interfere in their work — in the 1990s, this was a notable achievement compared with the conductors of Italy or France, as well as with the transition economies of Eastern Europe. The growing stability in Northern Ireland since the conclusion of the peace agreements in 1998 complemented Dublin’s promise to create a stable business environment.

10. Many U.S. companies were based in cities with strong Irish diasporas, such as Boston, New York or Philadelphia, and their top management often had Irish roots. Investment in Ireland for such companies from the United States became an opportunity for a symbolic “return to their homeland”. The historical closeness was emphasized by the linguistic community: Irish employees easily communicated with Americans, especially compared to residents of other EU countries. The English-speaking environment was one of the key factors that explained why American companies often chose Ireland to host their European headquarters. The demographic transition — an increase in the share of employees due to lower fertility and growing participation of women in the economy — also came in handy too.

Tiger throw

From 1994 to 2000, Ireland’s GDP growth rates ranged from 6 to 11%, and from 2003 to 2007, the average growth was 5%. During this period, the standard of living in the country not only exceeded the indicator of the former metropolis — Britain but also grew to one of the highest in Europe. In terms of GDP per capita in 2007, Ireland was second only to Luxembourg in the EU (this indicator grew from 67% of the EU average to 111%). Ireland from the poorest countries has become one of the richest.

Revenue growth led to a consumer boom that sparked a spike in the real estate market (partly due to the low interest rates of the European Central Bank — in 1999, Ireland entered the eurozone). Unemployment fell from almost 20% in the late 1980s to 3.5% in 2007, and salaries were growing at one of the fastest rates in Europe. By the end of the boom, inflation reached 5% per year, which raised prices in the country to the Scandinavian level, although salaries were comparable with the British ones. At the same time, the level of government debt remained at approximately the same level during the growth marathon. And the share of public debt to GDP decreased due to the sharp growth of the economy.

Unexpected wealth led to serious investment and modernization of the infrastructure and cities of Ireland. Roads began to be laid in the country, a suburban railway system was created, tunnels were built. In Dublin, whose population is close to a million, started the construction of the metro system (essentially a light rail), the first in the country.

Economic growth, low unemployment and a high standard of living have changed the trend of centuries-old emigration: Ireland has become a magnet for immigration. This significantly changed the country’s demographic outlook and led to the emergence of a multicultural society, especially in Dublin and other major cities. According to some estimates, in 1997 10% of the population was born in other countries. Some of the new migrants were Irish who emigrated from the country during the years of economic difficulties or their descendants — the Irish diaspora today has 60 million people in the United States, Britain, Canada, Australia, New Zealand and South Africa. However, a significant proportion of migrants came from other European countries, especially Eastern Europe. Ireland was one of the three countries of the “old EU” (along with Britain and Sweden), which in May 2004 opened its labour market to eastern European countries that joined the EU. As a result, tens, and then hundreds of thousands of citizens of Poland and the Baltic countries moved here, many found work in the service sector or construction.

But even inside Ireland, active migrations unexpectedly began. Young people began to leave rural areas and look for work in cities. The development of the economy and increased mobility of the population led to an increase in entrepreneurship and an appetite for risks — these qualities did not appear earlier, during periods of economic stagnation. This added dynamism to the economy, although it had little effect on exports — 93% of it was accounted for foreign companies.

The success of the “Celtic tiger” at the beginning of this decade turned out to be so great that neighbours gathered to repeat it. In 2005, Scottish nationalist leader Alex Salmond said that Scotland should become independent of London and repeat the Irish experience, becoming a “Celtic lion” (the lion is the heraldic symbol of Scotland). The difference in economic welfare between Britain and Ireland was so high that it began to threaten the unity of the United Kingdom.

Exhausted tiger

However, since the crisis began in 2007, the economic situation in Ireland has changed dramatically. Foreign investment went down due to the country’s loss of competitiveness — the salaries of Irish workers became too high, especially in Dublin and the surrounding area. Partly to blame for the strengthening of the euro against USD and the GBP. Some companies, such as Dell, chose to close their plants and move them to Poland. The real estate bubble was blown away: the Irish, who borrowed the value of their homes for bail, were not as wealthy as they thought. At the beginning of 2008, Ireland entered a recession, which led to a sharp increase in unemployment (increased from 5% in 2007 up to 15% in 2012). Poles and Lithuanians began to leave the Emerald Isle, and even some Irish people thought about emigrating to Australia or Canada, where the depth of the crisis wasn’t so severe.

In the fall of 2008, at the peak of the banking crisis after the bankruptcy of Lehman Brothers, Irish banks were on the edge of collapse. The banking system was saved only by the fact that the government gave guarantees on the bank accounts of citizens.

After the crisis

There are not many countries on our planet that are capable of achieving economic growth of almost 8 per cent. Even China, last year, managed to increase its GDP “only” by 6.6 per cent and in the coming years expects to stay at this level at best. But in the northwestern of Europe, there is a state with a population of 4.9 million people and comparable in the territory with the Leningrad oblast (it’s where Saint-Petersburg, Russia), which was able to make such a breakthrough.

Moreover, if in China the economic dynamics slowed in 2014, then in Ireland, on the contrary, it was growing. As a result, the recovered “Celtic tiger” overtook a somewhat out of breath “Chinese dragon”.

Austerity and business model have proven their effectiveness

In autumn 2010, Ireland became the second Eurozone country after Greece, which received emergency multi-billion financial assistance from the creditors — the European Union (EU), the European Central Bank (ECB) and the International Monetary Fund (IMF).

The successful recovery of the Irish economy is thus confirmed by the correctness and effectiveness of the austerity measures and reform programs, which the European Stabilization Fund and the IMF insist on implementing when they allocate the funds. Following Ireland, various types for such a program were implemented in Portugal, Spain and Cyprus. It did not give the desired result so far only in Greece.

A society capable of reform

A remarkable example of this statement is the decision taken in 2011 at the request of the IMF to gradually increase the retirement age from 65 to 68 years. Society took that decision surprisingly well, there was no explosion of indignation at all. “The Irish do not like to sit back. They tell themselves: if life expectancy increases, then working longer is completely normal, ”explains Edgar Morgenroth, Irish professor at the Institute for Economic and Social Research in Dublin (ESRI)

A country with medicine production and software development

Once a classic agricultural country famous for butter, beer and whiskey, Ireland, after joining the European Union in 1973 and a large-scale reform of the education system, managed to get on an industrial path, focusing on high-tech industries and advanced technologies. So, today the pharmaceutical industry is the largest contributor to the Irish economy, providing almost 60 per cent of exports. As well as the IT industry, especially the American one, has become one of the most important employers on the island.

The computer giant Intel produces microchips in Ireland; also you can find here the European headquarters of Microsoft, Facebook, Google, Twitter, Linkedin. While Apple has already created about 6 thousand jobs on the island.

Irland’s competitive advantage is not only a very low corporate tax rate of 12.5 per cent, which Dublin managed to defend in negotiations with the IMF and ECB. A favourable investment climate is also facilitated by excellent transport infrastructure, created mostly with the help of financial support provided by the EU, a large number of qualified personnel, a low level of corruption and efficient government performance. And also, let’s not forget the fact that Ireland is the only eurozone country with English as the official language.

What’s happening now

Today Ireland is fighting coronavirus as well as the rest of the world. Also, there are some local issues like the Irish sea border negotiations with the UK. Since Brexit came into force, the Irish border became the stumbling block between Brussels and London. The negotiation is centred around the question of which side will carry the cost of customs procedures for the years to come. Nevertheless, “Celtic tiger” is in a winning position, as many British companies have already moved HQ to Ireland to continue business activity with Eurozone.