Introduction Ireland has been recognised as one of the fastest growing countries compared to other European Union (EU) countries in the 1980s and 1990s. With a wider and in-depth communication with the EU as well as the rest of the world, the great changes have emerged from the increasing of export, output and employment thus named Ireland as “Celtic Tiger” (O’Donnell, 1998).
This assay will specify Ireland’s great changes in terms of macro-economic performance in many aspects such as foreign direct investment, the emergence of Ireland as a net contributor to EU budget and those changes influenced its role in EU as well as the attitude towards EU during 1998 and 2010. Ireland’s Performance – Macro-Economy The Irish economy has buoyant and the agricultural economy has been overtaken by integrated economic strategies and processes (Bukold et al., 1996).
What factors have impacted on the leaps of Irish economy? Besides the booming of Ireland, deep differences are based on influences and weights of different causes of factors. On the one hand, some argue that the internal factors which mainly contribute to the economic restructuring which include implementation of membership policies, human capital innovation and upgrading of infrastructure (Bukold et al, 1996; Room et al, 2005; Allen, 2007).
On the other hand, the claims are based on the external factors which mostly contribute to Ireland’s economic development, such as the reception of EU funds, the strong support of Foreign Direct Investment (FDI) and the benefit from single market programme (Brennan, 2008; O’Donnell, 1998; Laffan, 2001). There is no single answer to explain such remarkable changes and more perceptions should be raised. The complex interaction between domestic, European, even the US and global environment are all likely influence Irish’s economy; some key points will be discussed as follows.
Consistent Implementation of policy When Ireland joined EEC (European Economic Community) in 1973, the core executives of its government had forced to change from the “domestic policy-making” to the “carriers of Europeanization” (Laffan and O’Mahony, 2008:56). It is not an easy job for any member country to be the “translator devices” between two sides, however it is an undeniable fact that the adaptation of EU structures by national levels of government has existed for a long time since the EU has been established (Genschel, 2001:98).
Ireland has been keeping lower corporation tax compared to other EU member countries in order to gain more investments and profits (Agenda 2000). According to the data in Box. 1, the real GDP growth rate was not increased as rapidly as people expected in late 2000s. Box 1: Ireland Databank Sources: Country Report of Ireland, Political Risk Services, 2010 The OECD estimated the average real GDP growth rate was 6. 1% in 2000 to 2004 with little increase of 1. 2% from 2005 to 2009. Nevertheless, the expenditure of Ireland government had increased from 25. 5% in 2000 to 37. 6% in 2009.
Furthermore, compared to the average of inflation in the euro area was 2% during 1998 to 2008, Ireland’s inflation was higher than the euro level which was up to 3. 4%. In addition, the consumer price had increased 36% in the same period while considerably higher than the euro average 23% (NESC, 2010). The way of implementation policy as “regulative” seems did not work well at this point (Bulmer and Burch, 2000:50). Although there are certain advantages of low tax policy by encouraging variety of investments into this country, nobody could grantee that those investments would not pulled out by attracting of lower tax in other countries.
The housing market was also raising problems. Generally, the tax system and loan regulations towards housing can influence the house prices (Mikol and Noord, 2004). There is a notable fact that the Irish construction industry has taken place nearly 25% of the country’s GDP and the new houses have been built as half as the United Kingdom yet the population is nearly 6 times fewer than UK (Lewis, 2011). In addition, people spend much higher mortgages than the value of their houses. While other studies claimed that the growth of house prices showed some advantages in Ireland’s economy.
As Kelly (2009) asserted that the increasing house prices were become the strong growth in credit. In other words, the loans to Irish private investors or overseas institutions were increased 155% from 2003 to 2008. The net indebtedness to these investors around the world had also increased 50% of DGP in Ireland and it was a significant performance for commercial properties (Honohan, 2009). However, the “strong leading” might cause further crisis threaten to Ireland’s economic environment such as the baking crisis (NESC, 2010).
For instance, the two largest banks in Ireland, Allied Irish Banks (AIB) and the Bank of Ireland, have held the foreign debt as much as 148 billion euro in early 2010, Irish government have to obligate a lot of money which was 2. 6 times the country’s GDP in 2009 to solve this financial crisis in order to stop national banks’ further failure. This may lead a vicious spiral which borrowing money from outside of Ireland then to fix its own scar. Besides that, the crashing downturn after 2008 led to some other problems like more payments on labour cost, higher unemployment which was 13% in 2010 (The PRS Group, 2010).
Fortunately, Irish government work with the EU made efforts to predict and prevent these problems happen again, also reconsider the more sustainable fiscal policies, for example, the introduction of the Mortgage Arrears Code in 2009 which was organized the lending activates and tried to control the house price in terms of preventing the economic slides by regulating or cooperating with commercial banks (O’Connor, 2009). Policy towards the economic structure such as the housing and property should at least ensure the stability of the society as a whole therefore promoting the sustainability of economic growth.
The Emergence of a Net Contributor to EU Funds Taoiseach Albert Reynolds in the late 1990s mentioned that “The National Development Plan is the most important financial submission Ireland has ever made to the European Community” (Reynolds in Brennan, 2008:89, p95). Studies also have shown that the Department of Finance was Ireland’s main negotiation sector with EU along the transformation from protectionism to liberalisation (Laffan, 2001). The cohesion states including Ireland, Portugal, Greece and Spain had a long time period of consistent development under the
support of EU funds especially the Structural Funds and the Cohesion Fund since 1980s. The European Commission set certain criterion to examine the compatibility of nations and regions therefore supplying with different aids by EU Funds. Ireland successfully received a doubling of the Structural Fund from 1990 to early 21st century. During the 20th century, Ireland as a net receptor was under the process of receiving the EU funds approximately ? 18billion which including ESF (European Social Fund) was ?
3,900million, ERDF (European Regional Development Fund) was ? 8,100million and Cohesion Fund started in 1993. Also as reported the European Agricultural Guidance and Guarantee Fund has been replaced by two new funds which are the European Agricultural Guarantee Fund and the European Agricultural Fund for Rural Development since the new final framework period started 2007 to 2013 (Department of Finance, 2008). As the table (Table 1) shows below, the net receipts from EU funds contributed to Ireland’s DGP increased at least 1% from 1998 to 2004.
Table 1: Receipts from and Payments to the EU Budget Sources: Department of Finance & Paying Authorities As Professor Bridig Laffan once said “I think the Irish saw the EU as a way of modernising Ireland”, Ireland distributed this money into a large scale projects like improving the education level of citizens or supporting the infrastructure construction in terms of road investment and railway renaissance. For instance, one of the major projects is rail link updating from Cork, Dublin and Belfast to Larne.
This single project cost euro 238m including all the expenditures such as interest payment and disputed and the “socio-economic profitability” has been estimated at 8% (Bukold et al. , 1996). While other argued that the protection from EU was somehow ultimately harmful to Ireland’s economic welfare and the process of “market liberalisation” needs to be rearranged to become more adequate (Bradley, 2000:13). In other words Irish was holding a large number EU budgets, instead they still suffered the bank crisis and inflation especially the real estate bubbles.
Despite of the arguments, the EU funds benefit to Ireland’s economic and society growth outweigh its negative impacts. Specifically the highway around Dublin, the heritage centres scattered the state, airway and seaway improvements and the like. Yet, studies also claimed that the investments from EU budgets in Ireland were “very slow” nowadays compared to the 1980s (Barry et al. , 1999:114). Since the economy has consistently increased for a long time, people believed that Ireland could become a net contributor in the end of the current EU final framework which is 2013.
The Single Market and the Introduction of Euro Currency Due to the constraint of EU budget in Ireland, more attention has been paid to the Single Market (SEM) programme as well as the euro currency introduced to Ireland in 2001. SEM is aim to support the free movements of goods, people, services and capitals. For Ireland, SEM dedicated to build a large flow of domestic investments and expansion of exports. The ESRI (Economic and Social Research Institute) has estimated that SEM was helped Ireland’s growth for 3 times more than Structure Funds (Agenda 2000).
The experiment of directorate general internal market and services in this region is a strategy that can maximize the influence of the balance between the poor regions and rich regions for the integration of EU. The unemployment is keeping dropping from year 1998 to 2008; especially in year 2001 (Table 2). However, it started to ascend in recent years, citizen and companies unlikely to see the benefit of market integration in EU and also seems less willing to protect SEM. A question faced by Ireland was attracting more investment and creating job opportunities.
There is no way to lower the already low corporate taxation and waiting for the financial support from the EU again. Table 2: Unemployment Sources: COS ‘Labour Force Survey’, ‘Quarterly National Household Survey’ The Single Market Act has been re-launched in 2010 to resume the employment. This new project aims to help the member countries by growing job opportunities and make people feel more confident. Since its very difficult working with people from different countries, for example the Irish operate businesses with the German, it is very time consuming and inefficient to find the right information.
Single Market Act is focus on the details to make it easier for companies and citizens have more abroad opportunities to growth both the confident of consumers and workers, in the meanwhile, they pay attention to the human and social aspects therefore hoping to regain the confident from business. Indeed, the united in euro currency towards Ireland which help to push forward the cross-border trades as well. Ireland joined the new EMU (Economic and Monetary Union) at the early 1999, since then less influences of punt from its neighbourhood United Kingdom (Laffan and O’Mahony, 2008).
There are many positive consequences of Ireland joined EMU. It helps to keep a stable interest rate due to better stability of price, remaining inflation as low as possible, more flexible movements of human capital, goods and services. Lane (2010) stated that Ireland got benefits from joining the euro currency rather than not. On the contrary, other analysis suggested that a reduction in interest rates and the decreasing of country’s competitiveness were faced by Ireland after it joined EMU (NESC, 2010).
On balance, it is believed that the rebound of economy is going to happen in 2012 (The PRS Group, 2010). In this regard, a sustainable fiscal policy and debt condition, and the roles in euro zone especially monetary performance or the diversity of whole domestic market should be examined in advance. FDI and Innovation One of the factors which drive the economic growth was the large amount of Foreign Direct Investments (FDI) to Ireland. The total amount of FDI from € 53billon in 1998 rose up to € 131billon in 2007 (The PRS Group, 2010).
More than € 10billon investments from the US in 2007 and over 600 U. S companies entered Ireland, brought direct job opportunities up to 100,000. In the meanwhile it’s supporting some other 250,000 employees mainly separated in the hi-tech, digital and bio-tech and life sciences industries. For example, the industry leading companies like Google, Intel and Dell were making Dublin the hub of the respective operation among Europe, Middle East and Africa. Economists may consider the function and effectiveness of new patterns of economic growth and also analysis the weight of these dynamics.
Specifically, Information and Communication Technology (ICT) was one of the most important methods which can influence the investment among other assets (Schreyer and Colecchia, 2001; Van Ark et al. , 2002). The sectors and pace of investments in ICT among EU member countries are widely different (Figure 1). Compare with other EU countries, Ireland had a big forward step in 1990s which the share of investment in ICT in total GDP increase of approximately 1. 5% in the decade. With the increasing investment of ICT in Ireland, a larger part of production activities were engaged in this new technology.
Several studies have shown that the compositions of industries are successfully supported by ICT-using sectors (McGuckin and Stiroh, 2001; Pilat et al. , 2002) Figure 1: The Share of Investment in ICT in total GDP Source: OECD estimated based on Database on Capital Services The further step should consider how much FDI like ICT investment and innovation real contribute to the economic dynamics and growth in Ireland. Room (2005) assessed that the organisational form and firm structure in terms of management and workforce should also be changed accordingly to adapt to the renovation trend.
Other than that, foreign direct investment brings innovation which is one of the indispensible accelerators of the economic growth and it had assisted the increasing of employment and competitiveness of Ireland, the key things is to establish a suitable and sustainable way to adapt the change and make it superior. The Attitude towards the European Union in Ireland The “Celtic Tiger” has helped to change its role in EU since 1980s and the political classes might not take part to play as a simple translator device any more.
From the recent Eurobarometer survey listed that only 25% did not supported Irish membership and 85% believed that Ireland had benefited from the membership (Qvortrup and Taffe, 2002). We can find the result from the surveys showed that most of the political classes and public have positive attitudes towards the integration of EU. However, louder critical voices rose from different political parties especially in Sinn Fein and the Green Party. June 2001, The Nice Treaty in purpose of adding new member states failed on account of 54% of Irish did not vote for supporting it.
Studies believed that the “Yes” campaign was ineffective may cause this result (Garry et al. , 2005; Gilland, 2002). While others assessed that the lack of awareness and understanding of the Treaty led to the “no” vote. After more than 1 year, the second referendum took place, this time; many political parties made clearer strategies and mounted a positive campaign including ICTU (Irish Congress of Trade Unions) listed out the benefits for employees by accepting the Treaty (Gilland, 2003). With the clear “yes” propaganda and analysis, this vote reversed the first time.
The rejection of the Nice I referendum was a “major shock” to local level political groups, partnership with EU and potential candidates in Eastern Europe (Laffan and O’Mahony, 2008:49). The European integration seems imperative; however variety voices were from many member states. With the hope of opening the Irish labour market to a wider range of new member countries, the immediate benefits did not appear as people expected. As ICTU described that it was because the “virtually unregulated labour market” in Ireland hinds the expansion of labour market as well as economic growth (Hyman, 2010).
After the falling economical trend in late 21st century, more questioning attitude towards the EU was emerging in the parties (Laffan and O’Mahony, 2008). For example, the Lisbon Treaty referendum results with 53. 4% against at the first time in June 2008. This issue was not as surprised as the Nice Treaty rejection and it needed to “consider Ireland’s future in the EU” (Oireachtas in Dinan, 2009:08, p13). A big question is that why Irish had benefited significantly from EU membership but reject a revision of the treaties twice in the 21st century.
Studies suggested that the active campaigns cannot increase the understanding level about the EU effectively (Laffan and O’Mahony, 2008). Indeed, Dinan (2009, p116) claimed that the “complexity” of the whole environment such as the different attitudes among “radical leftists, far-rightists, social conservatives, libertarians and now-liberals” was another reason. Over 38 years membership with the EU, the complex and frequent interactions between local government level and EU levels enhanced Ireland’s profit.
The attitude towards the EU has change from the simple carrier of Europeanization to a better self-decision maker which can be found in the change of the interest to the electorates. Conclusion During the year 1998 to 2005, Ireland experienced the prosperously economic growth. We can find the evidences in the increasing labour inputs and foreign direct investment, also the receiving of EU funds and more open market contributed its growth. With the single currency “euro” introduced to Ireland, which lower the interest rate along with the collapse of housing market and recessions, the economy has experienced a sudden decrease from 2005 to 2009.
During the decreasing period, the world trade had fallen dramatically in Ireland and the consumer prices level was increased even higher than EU average. However, among the whole period from 1998 to 2010, Ireland’s economic performance in terms of FDI and contribute to EU funds has improved significantly and it’s DGP per-capita were still keeping in the front of EU member states. As Eurobarometer mentioned that the attitude towards the EU continues to be positive, although the Irish opinion were more complex to some specific polices. References Agenda 2000: Implications for Ireland, Institute of European Affairs.
Allen, K. (2007), The Celtic Tiger: The Myth of Social Partnership in Ireland Barry, F. , J. Bradley, and A. Hannan (1999), The European Dimension: The Single Market and the Structural Funds. Understanding Ireland’s Economic Growth, edited by Frank Barry, pp99–118 Boone, L. , F. Mikol and P. van den Noord (2004), Wealth Effects on Money Demand in the Euro Area, OECD Economics Department Working Papers, No. 411 Brigid Laffan (2001), Organising for a Changing Europe: Irish Central Government and the European Union Brigid Laffan and Jane O’Mahony (2008), Ireland and the European Union, p56.
Bulmer, S. and M. Burch (2000), the Europeanization of British Central Government’, in R. A. W Rhodes (ed. ), Transforming British Government Vol. 1, p50 Desmond Dinan (2009), Institutions and Governance: Saving the Lisbon Treaty – An Irish Solution to a European Problem, JCMS 2009, Vol. 47, Annual Review, p13 & p116 Department of Finace, Ireland (2008), http://finance. gov. ie/ Garry, J. , M. Marsh and R. Sinnott (2005), “‘Second-order’ versus ‘Issue-voting’ Effects in EU Referendums’: Evidence from the Irish Nice Treaty Referendums”, European Union Politics, 6 (2), pp201-221 Genschel, P.
(2001), The Rule of Integration, Comment: The Europeanization of Central Government, p. 98 Gilland, K. (2002), Ireland’s (First) Referendum on the Treaty of Nice, Journal of Common Market Studies, 40 (3), 527-535 Gilland, K. (2003), Ireland’s Second Referendum on the Treaty of Nice, OERN Referendum Briefing, http://www. sussex. ac. uk/sei/documents/irelandno1. pdf Graham Room (2005), The European Challenge, Innovation, policy learning and social cohesion in the new knowledge economy, pp23-27 Honohan, P. (2009), Resolving Ireland’s Banking Crisis, Economic and Social Review, 40(2)
John Bradley (2000), The Irish Economy in Comparative Perspective, Bust to Boom: The Irish Experience of Growth and Inequality, ed. B. Nolan, P. O’Connell et al, p13 Kelly, M. (2009), The Irish Credit Bubble, UCD, Centre for Economic Research, Working Paper, Wp09/32 Lane, P. (2010), European Monetary Union and Macroeconomic Stabilisation Polices in Ireland, Paper prepared for the NESC, forthcoming McGuckin, R. H. and K. J. Stiroh (2001), Do Computers Make Output Harder to Measure? , Journal of Technology Transfer, Vol. 26, pp. 295-321 Michael Lewis (2011), The economic Crisis – When Irish Eyes Are Crying.
NESC (National Economic & Social Council), The Euro: An Irish Perspective, No. 121, 7/2010 P. Schreyer and Colecchia, A. (2001), The Impact of Information Communications Technology on Output Growth, STI Working Paper 2001/7, OECD Peter Brennan (2008), Behind Closed Doors, The EU Negotiations That Shaped Modern Ireland, p89 Pilat, D. , F. Lee and B. Van Ark (2002), Production and Use of ICT: A Sectoral Perspective on Productivity Growth in the OECD Area, OECD Economic Studies, No. 35, Paris Qvortrup, M. and D. Taffe (2002), Murphy’s Law Revisited: The Irish Rejection of the Nice Treaty, 2001, Representation, 39 (1)
Richard Hyman (2010), Trade Unions and “Europe”: Are the Members Out of Step? University Laval, 3-29, p19 Rory O’Donnell (1998), Ireland’s Economic Transformation, Industrial Policy, European Integration and Social Partnership Steffen Bukold et al (1996), The State of European Infrastructure, European Centre for Infrastructure Studies The PRS Group (2010), Country Report – Ireland December 1, 2010, Political Risk Services, The PRS Group, Inc. Tom O’Connor (2009), Recent Developments in Mortgage Arrears and Repossessions in Ireland, ENHR-EMF Seminar on Housing Finance.