The Tiger Is Back
Why Ireland's economy really is on the rebound.
Sean Kay’s "The Celtic Cougar" article from Dec. 18 gives a misleading picture of the current condition and future prospects of the Irish economy and of Ireland’s inward foreign direct investment (FDI), corporate tax, and indigenous economic development policies in particular.
Latest quarterly national accounts data from the Irish Central Statistics Office (CSO) indicate that Ireland’s gross domestic product in the third quarter (Q3) of 2013 grew by 1.5 percent over the previous quarter and 1.7 percent from the third quarter of 2012. As reported by the Wall Street Journal, the Irish economy’s expansion over Q3 2013 was by some margin the fastest in the Eurozone and the second-fastest out of all European Union member states.
Irish CSO balance of payments data show that a surplus of €3.4 billion ($4.6 billion) was recorded on the current account in Q3 2013 — an increase of €1.2 billion ($1.6 billion) on the third quarter in 2012. The Q3 2013 figure corresponded to 8.1 percent of gross domestic product (GDP), a record for Ireland both in absolute terms and as a share of GDP since quarterly records began in 1998.
In the area of corporate taxation, and as we have set out in written correspondence to the U.S. senators mentioned by Kay, Ireland’s policies have been declared in full compliance with relevant Organization for Economic Cooperation and Development (OECD) guidelines. And far from being "long criticized in Europe" for our tax policies, the OECD also confirms — most recently via its Director of the Center for Tax Policy and Administration Pascal Saint-Amans — that Ireland is not and never has been a tax haven.
In addition, Ireland is fully supportive of international efforts to address aggressive tax planning and we are an active participant, together with the United States, in the OECD project addressing Base Erosion and Profit Shifting (BEPS). To clarify our national position in this regard, the Irish minister for finance published Ireland’s International Tax Strategy in October 2013.
Professor Kay is simply inaccurate in his claim that "[foreign] companies don’t employ large numbers of Irish people and they put little money back into the Irish economy." As is outlined in the latest available annual report of IDA Ireland — a government agency responsible for FDI — 152,785 people were working in 1,033 IDA client companies in 2012; the same year saw the creation of over 12,722 new jobs. In the past couple weeks alone, Charles River Managed Services, Regeneron Pharmaceuticals, and Liberty Mutual Insurance Group have all made further significant job announcements in Ireland. And such expressions of confidence in the Irish economy on the part of major companies should hardly come as a surprise: among other international accolades, Ireland was also recently identified by Forbes.com as No. 1 (first out of 145 countries ranked) on its list of "The Best Countries For Business."
In contrast to Kay’s assertion that Ireland’s leaders are "understandably hoping for the best, but so far failing to plan for the worst," the decision of the Irish government to exit the European Union/International Monetary Fund Program without a precautionary credit line was taken after the most careful consideration and detailed consultations with our partners in the IMF, the European Commission, European Central Bank, and other European Union Member States.
The context in which that decision was taken was favorable at the time and remains so. Irish bond yields are at historically low levels and Irish public finances are under control. The government is committed to reducing the budget deficit to 4.8 percent of GDP in 2014 and less than 3 percent by 2015, with measures also being taken to ensure reduction over time of our gross debt ratio.
Overseas investors are also rightly comforted by the comprehensive fiscal governance framework now in place in Ireland and Europe, including through the establishment of the European Stability Mechanism (ESM). Klaus Regling, head of the ESM, stated earlier this month that Ireland was right to pursue an exit without a precautionary credit line in place, given the reaction in the financial markets since the announcement by the Irish government in November.
Kay’s article correctly underlines the importance of indigenous Irish economic growth. This is an ongoing key priority for the Irish government. Ireland’s newly-released Medium Term Economic Strategy 2014-2020 includes specific measures to promote an entrepreneurial culture and encourage indigenous enterprises to grow to scale. Steps to enable better access to capital funding by Irish small- and medium-sized enterprises are a particular focus in this regard.
As the Taoiseach (Irish prime minister), Tánaiste (Irish deputy prime minister), and the minister for finance have made clear, the Irish government is under no illusions: the Irish people have made heavy sacrifices and our country continues to face significant challenges.
Contrary to Sean Kay’s claim, the "harsh realities and serious risks to the Irish economy that remain" are not being "swept under the rug." They are being addressed in an urgent and coherent manner that best reflects the overall interests of Ireland and its people.
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Sean Kay responds: I’m very grateful for the comments from Amb. Anderson, and appreciate her desire to put Ireland in the best light possible. There is no question that Ireland has, as noted in the original article, shown improvements in some important areas. The data presented by the ambassador for third quarter economic growth for 2013 was published the day after this piece originally appeared. But it is important to note that one quarter does not represent sufficient data points, and projected growth estimates for 2014 remain low relative to the depths of the economic downturn suffered over recent years of deep recession — and highly vulnerable to outside demand.
As the highly regarded Dublin-based economist Constantin Gurdgiev wrote in the Sunday Times on Dec. 8: “[T]he real GDP remained 1.2 percent below the levels attained in Q2 2012. Glass is half-full, says an optimist. Glass is half-empty, per pessimist. In reality, final domestic demand, representing a sum total of personal consumption of goods and services, net government expenditure o
n current goods and services, and gross fixed capital formation, fell in the first half of 2013 compared to the same period of 2012.”
As to Ireland’s corporate tax rates, it is well understood that they have been long criticized by politicians in Europe for the tax rate. As I have also written elsewhere, these same countries also benefit from the introduction of FDI into the Eurozone via Ireland — thus it is a more complicated issue than many of the critics point to. The reference that the ambassador notes regarding employing large numbers of Irish people was specifically written in relation to the headquarters operations of Facebook and Google — not to FDI overall. The relative growth of employment from FDI in Ireland has, however, stalled since 2001, which is when the government at the time opted to prioritize the banking and lending sector of the economy. Thankfully, the levels of jobs remained steady during the depths of the recession and that is an important fact that the ambassador rightly points to. Ultimately, Ireland is a great place for outside businesses, but the return into the Irish economy remains insufficient relative to the needs for internal growth and to further reduce unemployment.
The ambassador makes good points relative to the goals of the government for the coming year, absent the precautionary line of credit. These are reasonable goals, but they are planning by assumption and much can change even in six months — past projections have proven faulty. It was an understandable statement of confidence to go without it – but the result was to take Europe off the hook for Ireland’s continued challenges and remains a risk. Ten-year bond rates are low, however, and many highly regarded Irish economists assume that they cannot naturally stay this low while exiting the bailout. Thus, the question is how high they might go, and what that means also for future rounds of austerity in planning. We will have to see not after one month of reactions but rather six months to a year — perhaps longer — whether these assumptions bear fruit.
I appreciate the ambassador making a strong case. We share both a passion and commitment to helping see Ireland move forward. And there is indeed good news, especially in the lower unemployment rate and modest housing recovery. But there do remain rough seas ahead, and the best way to ensure smooth sailing is to identify the obstacles and work to move around them.