Europe: Ireland the Economic Miracle

Victor Lindeberg (Sweden)Victor Gustafsson (Sweden)

Graeme Russel (Scotland)Ville Majander (Finland)

Benedikt Scheckenbach (Germany)

Agenda Introduction Background

› History› Religion

The Celtic Tiger Cause

Introduction of the Euro & EU Aid Taxation & Industrial Policies Demographics & Geopolitics

Effects Economy Demographic & Social Housing Bubble

The Downfall - End of the Celtic Tiger 2001-2003 Conclusion / Outlook

The Island of Ireland

Quick facts 4.6 million Inhabitants Official languages: Irish / English Constitutional Government GDP per capita: 38,500 $ Unemployment rate at 14% Public debt: 94.2 % of GDP 157% of GDP Import/Export

Quick facts Cont`d

1801 Part of the UK 1922 Indepence 1973 Member of the EU Partition of the Island

› Republic of Ireland› Northern Ireland

High level of education

History of Ireland.-A brief overview.

First settlement – 8000BC Christianity 5th century AD Viking troubles 800 AD Ireland becomes English. Henry VIII

ca1530. 17th century Plantations The first “Great Famine”

United Kingdom of Great Britain and Ireland

The second “Great Famine” The Irish war of Independence Northern Ireland & the Irish Free State The Troubles The national flag of the republic

History of Ireland.-A brief overview.

Hofstede‘s Cultural Dimension

Power Distance Individualism Masculinity Uncertainty Avoidance

Hofstede‘s Cultural Dimension

Ireland China India USA0

102030405060708090

100

PowerdistanceIndividualismMasculinityUncertainty Avoidance

Celtic Tiger Introduction

The Celtic TigerWhat happened?

1980s• Strong FDIs• Reputation

for high-quality manu-facturing

1990s• Develop-

ment of clusters in:

• Chemicals• ICT• Pharma-

ceuticals

2000s• Advanced

Manufactur-ing with high R&D content

1970s• EEC

Membership• Adapted

educational system

1960s• IDA grants• Low

corporate taxes

EU impacts Joined the European Economic Community

(EEC) in 1973

In the end of the 1970s Ireland took action against currency fluctuations and joined in the European Monetary System

In 1999 the country entered the European Monetary Union

EU impacts Being a member of the EEC/EU resulted in EU-

backed aid money:Investments were done in:› Agricultural sector› Telecommunication› Education› Infrastructure/High-technology

High-technology related TNCs started to view Ireland as a suiting and appropriate link between the U.S. and Europe

EU impacts Ireland compared to U.K.

› U.K. left the European Exchange Rate Mechanism (ERM) in 1992

› U.K. did not join the EMU

› TNCs preferred an English speaking country that was part of the euro-zone, instead of one that was not

Corporate taxation in Ireland

Low taxation policies pursued by governments from 1956

10% on profits from 1981-2003 12.5% on profits for trading income 2003-

25% for non-trading income Resident companies pay corporate tax on

global income Non-resident companies pay on Irish-

sourced income only

Corporate tax in the EU 23.2% Average corporate tax in 2010 Developed countries tend to have

higher rates› Austria: 25%› Finland: 26%› France: 33.33%› Spain: 30%› UK: 20-27%

Corporate taxation in the World

Unique possibility Low taxation originally possible due to

lack of industrial base› Lowering taxes is difficult

Deficits, cuts in established government programs

Impossible for countries with heavy industrial base

› Industry requires infrastructure taxes required for upkeep

Effects of Ireland’s tax-policy

Low taxation attracts FDI› Major MNC’s established in Ireland

E.g. Google, Dell, Intel, Microsoft Transfer of profits to Ireland (Tax-

avoidance)› Today, still used to lower tax liability › Transfers not taxed for non-resident

companies Comparably low income tax

› Attracts skilled labour

Industrial Policies Subsidies & Investment capital

› Irish Government subsidises investment in Ireland

Enterprise Ireland› Provides support services for startups

Financial, Technical, Social International Financial Services Centre

› 14,000 high-value jobs› Favourable tax-rate from 1987-2005› Offices for half of the world’s 50 top banks

Geopolitics and geography Adaptation of government-funded higher

education

Investments were made to expand the Regional Technical Colleges and for the building of two new universities

Large share of technical and science graduates

Graduates

Geopolitics and geography Ireland had relatively high birth rates

during the decades leading up to the Celtic Tiger period

Large proportion of women outside the work force during the 1980s resulted in an enlarged labour force

Geopolitics and geography Making Ireland accessible:

› Deregulating the airline market between Ireland and U.K.

› This resulted in an increase of passengers, tourist earnings, employments and further cut costs for business people

› The IT/technology-industry itself

Real GDP per capita

Annual GDP Growth

Effects: Economy Rapid GDP growth

› 7.8% to 11.5% from 1995 to 2000› 4.4% to 6.5% from 2001 to 2007› Some gains wiped away in the recession

Unemployment fell from 18% in the late 1980’s to 4.5% in 2007› Currently 14%...

Debt/GDP –ratio fell› Level of Debt remained constant but GDP

rose

Government debtas a ratio of GDP

The stock market ISE surged from under 2,000 points to

a high of over 10,000 points › Currently at around 2,600

Employment Unemployment decreased from 18% in

late 1980s to as low as 4.2% in 2000 Economic boom created jobs and had a

positive impact on the labour force; increased from 1.2 million in 1993 to 1.8 million by 2003

MNC’s accounted for 47% of manufacturing employment – Ireland dependent on MNC’s for growth and employment

Unemployment Rate

Immigration During 1990’s Irish population could not

fill positions offered by the MNC’s – negative employment rate

The economic success of ‘Celtic Tiger’ encouraged return of Irish emigrants as well as skilled labour from across Europe

In 1996, for the first time in its history, Ireland had a positive net migration rate

Demand for labour across various sectors, including construction, finance, IT and healthcare

Social Inequality Economic success can be

contrasted with overall effect on society

High poverty rate compared to other EU member states

The ‘at risk of poverty rate’ increased between 1994-2005

Disparity of income and unequal distribution of wealth epitomised by Michael O’leary

Housing Sector 20 % of complete GNP during the boom

Construction Constructions of new buildings Employment:

126 000 (1998) 282 000 (2006)

Banklending 110 Billion Euro in Mortages Collapse in 2008

Houses Collapse after 2008

End of the Tiger 2001-2003 downturn – effect on Irish

economy Contributing factors to recession Government attempt to maintain

growth MNC’s leaving a sinking ship Effect on housing Market

Ireland today.-A brief summary.

Recession since 2008 Irish Banking Scandals Unemployment an all time high Mass emigration

Conclusions Lessons from the phenomenon

› Competitiveness via policies and taxation› Value of education› Applicaple to other countries?

Baltic-countries? Emerging Asian countries?

Risks› Sudden collapse detrimental effects› May compund social inequality

Thank you for your attention