The Rise and Fall of Celtic Tiger – Ireland
History is awash in rags-to-riches stories; they not only inspired generations of would-be entrepreneurs by offering a formula for success, but also provided the world with remarkable iconic figures to look up to.
However, we hardly hear about rags-to-riches and then back to square-one stories. The economic crisis that is engulfing Ireland, the Celtic Tiger, is an intriguing case in point.
Ireland, which was transformed from an agrarian landmass to one of the major technological hubs in Europe, was a remarkable success story that took place in the period between 1987 and 2007: the relatively-cheap, educated English-speaking workforce - the essential human factor - coupled with low company taxation, played a vital role in the enviable success; the emerging prosperous green landscape made the rest of the Europeans green with envy, by the way the living standard of the Irish was raised in a matter of years - beyond recognition.
Having been smitten by the Irish success, the economists around the world compared it with other well-known economic tigers, the Asian Tigers – Hong Kong, South Korea, Taiwan, Malaysia and Singapore – and conferred on their new darling the title, the Celtic Tiger.
One of the first economic strategies – if you can call it so, at least in the short run - that Ireland adopted was bringing down the corporate tax in a substantial manner to just 12.5%. The move turned Ireland into an investment magnet overnight. Most of the major players in the globe, just cashed in on the new opportunity by moving their business to Ireland. The companies included Microsoft, Dell and Google, to name but a few. The companies did not find it difficult to expand their workforces either; there were plenty of skilled workers who had no problem in working in an English-speaking environment.
In addition, as a relatively-poor member of the European Union, it was entitled to a substantial financial package from the union. The cash flow revived the agricultural sector on a par with technological sector; the cumulative effect transformed Ireland beyond recognition – the very success which in turn brought its painful downfall.
The consumer-spending boom triggered off an inevitable housing boom. Almost all the major banks invested heavily in the construction sector in the hope that the economic boom that they experienced was irreversible. Unfortunately, they were badly mistaken.
Ireland suffered the fate of Dubai; the property bubble burst and the banks have been thoroughly exposed to an imminent danger of collapse as never before. At the height of the crisis, the Irish government guaranteed that it took the responsibility of safeguarding the rights of depositors. At that time, everyone thought that Ireland managed to weather the fiscal storm; but it was an illusion.
Two weeks ago, the stories started circulating in the media about a new crisis – a very serious one. At the outset, the Irish government ruled out a bail-out package from the EU or IMF, when the latter collectively offered help. While the politicians kept issuing conflicting signals while keeping an eye on the national mood, the governor of the Irish Central Bank broke the ice by saying that Ireland was left with no choice but to accept the bail-out package. It was a bitter pill for the Irish politicians; after dragging their feet for weeks, they were ultimately compelled to accept the bail-out which ran into billions.
By refusing to accept the financial help, the Irish government tried to cover up a catalogue of blunders. Moreover, they feared that the big powers of Europe, especially Germany, would boss them around by dictating the economic strategies. One of the thorniest issue was the low corporate tax that Ireland was determined to hold on to lure the big investors. It is highly unlikely now.
However, after bowing to the inevitable, Ireland not only lost its power to call shots, but also marched towards political anarchy. The Irish government is struggling to survive, as the Green Party withdrew its support. The rising unemployment, the impact of austerity measures and brain-drain do not make pleasant reading for any Irish politician.
While sensing the growing crisis on its doorstep, George Osborne, the Chancellor of Exchequer of Britain declared that Ireland is a friend in need. Britain offered a substantial loan to Ireland to deal with the crisis, in addition to what it can do as a member of European Union.
The crisis in Europe does not end in Ireland. Portugal, Spain and Greece are sending more alarming distress signals. The combined impact has taken its toll on Euro and fiercest pessimists even question the viability of Euro – and Euro Zone for that matter.
The Irish crisis shows the danger of luring foreign investors for short-term gains while antagonising the neighbours - by keeping them at an unfair disadvantage. The struggle that Ireland goes through now for its very survival, clearly shows that its so-called economic blueprint for rapid success, in the long run, is a disaster of gigantic proportions. It is a wake-up call to those who want to emulate the Celtic Tiger – before it is too late.
- Asian Tribune -