Ireland was for a long time one of the poorest countries of Europe with high unemployment, a dearth of foreign investment and a skills shortage. But in the last two decades it has become a wealthy, modern industrial state, dubbed the “Celtic Tiger,” with low taxes luring foreign multinationals, fuelling a huge expansion in employment.
But the roar of the tiger turned to a whimper as the economy was hammered by the global slump, with Ireland overdependent on housing and financial services. Irish banks funded an unsustainable property boom that forced the Irish government to guarantee all deposits of the five biggest institutions, in an attempt to prevent a Northern Rock-style bank run.
Tax receipts from property and financial institutions dried up and unemployment soared, along with the size of the public-sector borrowing requirement. A few weeks ago, the Irish finance minister, Brian Lenihan, called for sweeping cuts across the board to stabilise the shattered public finances as he announced the harshest budget in decades. He unveiled public-sector pay cuts and reductions in unemployment and child benefits in a bid to achieve savings that would restrain the deficit to a projected 11.6% of gross domestic product (GDP) next year.
But the move was met with opposition from trade unions, which had been pushing for an alternative plan that envisaged 300,000 public-sector workers taking 12 days unpaid leave in 2010, as well as agreeing to reforms in working practices.
Despite signs of industrial unrest on the horizon, there are indications that the worst of Ireland’s economic woes could be over: Dublin said recently that GDP expanded by 0.3% in the three months to September, although it had shrunk by 7% over the previous year. Kevin Gardiner, the economist who coined the phrase “Celtic Tiger”, is predicting that the economy will do no worse than bump along the bottom in 2010, with growth turning positive by the end of the year.
But Ireland will take years to recover from a financial crash that has seen the net indebtedness of Irish banks to foreign institutions and bondholders rise from 10% of GDP in 2003 to 60% in early 2008. And with question marks over the very survival of the banks, the government has had to step in to shore up their assets by agreeing to take over the worst of the sector’s property loans. 2010 will be anything but easy.
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