After years of economic stagnation resulting in massive emigration, Ireland boosted its economy by attracting foreign investors during the 1990s with a particular emphasis on high-tech development. The low corporate tax rate of 12.5 percent was partly responsible for the growth, which transformed the country from an agricultural focus to a knowledge economy. Everything worked—from educating a skilled work force to attracting tourists to the Emerald Isle—and Ireland acquired the moniker of the "Celtic Tiger." But along with growth and prosperity came the real estate bubble followed by the global recession.
Boom turned to bust in 2007 when the banks, loaded with worthless mortgage-backed securities —drove the government’s once-balanced budget deep into the red to a deficit equal to 12 percent of gross domestic product — or four times the European Union limit of 3 percent. Now Ireland must consolidate public finance, clean up its banks and find new ways to expand its economy and salvage a depressed housing sector — all without falling victim to a Greek-style debt crisis.
Last week, The Fiscal Times profiled three other European countries that face stiff economic challenges — Greece, Germany and Spain. The Fiscal Times also spoke recently with Barry O’Leary, the CEO of IDA Ireland, the agency charged with attracting investors to Ireland, about the magnitude of the challenges facing the newly tamed Celtic Tiger. Here are excerpts of that interview:
TFT: The government has embraced some tough fiscal measures to reduce the budget deficit to 3 percent of GDP by 2012. Does this have the support of the Irish public and the business community?
O’Leary: It certainly has the business community, which is very much in favor. The rest of the community accepts it but is not happy about it, obviously. People realize we are in a situation where the fiscal policy needs to be tightened up and we have not had the reaction you had in other countries. In the public service area, salaries have been cut by 6 to 30 percent in the last 18 months … And we have not seen anything remotely like the reaction in Greece.
TFT: The ratings agency Standard & Poor’s yanked Ireland’s AAA rating last year. Will Ireland soon regain that badge of fiscal honor?
O’Leary: We have a marathon to go in terms of the overall fiscal situation. It is a work in progress and it will take time, there is not any doubt about that. A lot of things we can do ourselves, but much will depend on the global environment.
TFT: How will the banking crisis shake out? The government has assumed massive liabilities, and the banks are still moribund. What can be done?
O’Leary: They are getting equity from the government and they are raising equity privately. That should get them back to lending, especially to small and medium-sized businesses. That is part of getting the national balance sheet right.
TFT: Ireland became the "Celtic Tiger" in the 1990s and made an amazing go of things before the property bubble. If real estate and construction are no longer viable, what is the future core of the Irish economy?
O’Leary: The continuing growth in foreign direct investment. Ireland has eight of the top 10 U.S. technology companies and eight of the top 10 [pharmaceutical firms], and 15 of the top 25 in medical devices and about half the large financial institutions. They are a powerful force in the economy. So it will really be the export-led businesses that have to drive the economy as well as the growth of Irish-owned businesses ... The modern sector of digital and life sciences is a big sector here and one of great growth in the long term.
TFT: The euro is now being blamed for many ills that have befallen European countries. How do the Irish feel about the euro these days?
O’Leary: From an Irish perspective everyone is still very much in favor of the euro. Our economy has done very well in general excepting the last 18 months to two years. There was a time we were linked to sterling and our fortunes went up and down … Overall [the euro] has been very positive. There was one pressure point. When the Irish economy was booming from 2002 to 2007, the interest rates were controlled by the European Central Bank and normally you can use interest rates to dampen lending … There was cheap money available and that caused us some difficulties.
