From Celtic Tiger to the Financial Crisis in Ireland

Topics: European Union, Republic of Ireland, Economy of the Republic of Ireland Pages: 5 (1742 words) Published: June 2, 2012
The latest history of the Irish economy: from Celtic Tiger to the financial crisisCeltic tiger is a term used to describe the economy of Ireland during a period of rapid economic growth starting in the second part of the 1990s and ending in approximately 2007-2008. During that time Ireland experienced a boom which transformed the country from one of the poorest states in Europe into one of the wealthiest. The term Celtic Tiger was first coined by an Irish economist Morgan Stanley and derives from East Asian Tigers: South Korea, Singapore, Hong Kong and Taiwan which experienced a similar economic boom to that of Ireland in the late 1980s and early 1990s. In January 1988 The Economist presented the economy of Ireland in such words: Take a tiny, open ex-peasant economy. Place it next door to a much larger one, from which it broke away with great bitterness barely a lifetime ago. Infuse it with a passionate desire to enjoy the same lifestyle as its former masters, but without the same industrial heritage of natural resources. Inevitable result: extravagance, frustration, debt... Ireland is easily the poorest country in North-West Europe. Its gross domestic product is a mere of 64% of European Community Average (Poorest of the rich as quoted in Murphy 2000:3) Nine years later the same magazine described Irish economy as “Europe's shining light”. “Just yesterday, it seems, Ireland was one of Europe's poorest countries. Today it is about as prosperous as the European average and getting richer all the time” (Ireland shines). The major reasons for this progress are globalization and Irish membership in the European Union. While the accession of Ireland to the EU in 1973 and a series of EU regulations which first brought destruction to the Irish economy, in the long turn Irish membership in the European Union turned out to be beneficial. First of all, more markets for trade opened. Prior Ireland's accession to the Union, Irish trade was based predominantly on exchanges with Great Britain. EU subsidies were used to increase investments in the education system and infrastructure. This, in turn, encouraged such high-tech companies as Dell, Intel or Microsoft to locate in Ireland. Domestic entities were also established to support the industrial growth of the country, for instance: Enterprise Ireland, a state agency which provided financial, technical and social support to opening businesses or the Science Foundation Ireland to promote education for highly-skilled persons particularly in biotechnology and information and communication technology. The factor that had the highest influence on this economic development of Ireland were multinational corporations (henceforth MNCs), primarily American but also Japanese. The sectors in which the MNCs operated were particularly high-tech namely: computers, computer software, pharmaceuticals and chemicals. The corporations sought to establish their European base because of the creation of the single European Market and the Maastricht Treaty in 1992. Ireland seemed to be the ideal option, especially for the Americans. Low corporate taxation in Ireland was probably the greatest incentive for locating in that country. The new MNCs were attracted to Ireland by very low corporate tax rates – initially a zero per cent corporate tax rate on the profits of manufactured exports, and later, a 10% of corporate tax rate on manufacturing profits and internationally traded services profits. Ireland was able to offer these attractive tax facilities because of the absence of a well established industrial sector already paying substantial corporate tax rates. Ireland's lack of industrialisation, the problem which had restrained the economy in previous decades, suddenly became a plus factor in that it enabled the government to provide tax facilities to MNCs which were not possible in mature industrialised economies. Imagine the budget deficit that would be created if France or Germany attempted to introduce a...
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