Lost Celtic Tiger. Photo by <a href="http://flickr.com/photos/jaqian/308499768/">jaqian</a> (<a href="http://creativecommons.org/licenses/by/2.0/deed.en">CC</a>).
Lost Celtic Tiger. Photo by jaqian (CC).

Policy Innovations Digital Magazine (2006-2016): Briefings: Is the Celtic Tiger Dead?

Jul 18, 2008

Many Irish eyes stopped smiling in June when the Central Statistics Office announced that nearly twenty-five years of economic growth had ended. Ireland's GDP shrank by 1.5 percent during the first quarter of this year.

"It's time for hard hats, I'm afraid," was Board Governor Richard Burrows's bleak assessment at a recent Bank of Ireland shareholders meeting. So is the vaunted Celtic Tiger dead?

"It's not dead. But the Irish economy is going to have to reinvent itself," according to Joseph Quinlan, Chief Market Strategist of Bank of America Capital Management in New York.

It won't be the first time. For decades, Ireland was tarred as a Third World country on the edge of Western Europe. Economic stagnation, aggravated by bitter fighting between Ireland's dominant political parties, Fine Gael and Fianna Fail, spurred mass migrations of educated young Irish during the 1970s and 80s.

The turning point came in 1987 when Fine Gael leader Alan Dukes, then in opposition, told a chamber of commerce meeting in the Dublin suburb of Tallaght that he would not oppose economic reforms pursued by Fianna Fail.

"When the Government is moving in the right overall direction I will not oppose the central thrust of its policy," Dukes said. "If it is going in the right direction I do not believe that it should be deviated from its course or tripped up on macroeconomic issues. I will not play that game because it would not produce any real or lasting advantage for the Irish people: least of all for those who currently have neither political nor economic advantage."

The Tallaght Strategy, as it became known, paved the way for a negotiated "social partnership" agreement between the Irish government, business leaders, and organized labor. The Programme for National Recovery of 1987 detailed market-oriented reforms designed to shrink the size of the government budget deficit, stimulate investment, increase employment, and reduce inflation. The Irish economy almost doubled in size between 1996 and 2006.

"Social partnership helped to trigger a momentum that turned Ireland from an economic basket case into one of Europe's most successful economies," observed authors Tim Hastings and Brian Sheehan recently in the Sunday Business Post.

Ireland's success did not go unnoticed. Government officials, business leaders, labor unions, academics, and students from dozens of nations visited Ireland to see the miracle and learn how to replicate it.

"Other E.U. accession countries essentially followed the Irish model," Quinlan told Policy Innovations. "Now Ireland has competitors, both in Europe—like Poland and the Czech Republic—but also on the fringes of Europe in places like Morocco."

In the battle to stay competitive, Ireland is losing ground. Reclaiming its place as the "hottest economy in Europe" will require Ireland to compete not only for investment capital, but also for labor.

During the boom, Ireland enjoyed a glut of low-skilled workers from the former communist nations of Eastern and Central Europe, many of whom took jobs in the construction sector. Now that the bubble has burst, they have begun to return to places like Poland, currently on the cusp of its own economic miracle.

Ireland's policymakers now must scramble to prevent a return to the hopeless, stagnant era of the 1980s.

Several advantages remain for the Irish. Among these is an educated, English-speaking labor force and a corporate tax rate of 12.5 percent, among the lowest in Europe. By contrast, corporate tax rates in the United Kingdom and United States are 30 and 40 percent respectively.

Perhaps Ireland's most valuable advantage is the knowledge that miracles do happen. Newly installed Taoiseach (Prime Minister) Brian Cowen seems certain that the Celtic Tiger will roar again.

"I will be bringing a clear message that Ireland is now a confident and successful European country, with a coherent strategy to maintain that success and build for the future," he promised prior to his first official visit to the United States this week.

The Irish construction boom is over, but with the sense that the sky is falling in the Emerald Isle the country may still be a hard-hat area.

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