Two weeks ago the Government of Ireland increased income tax, cut spending, offered early retirement to public servants in key areas who were aged fifty or older, cut the expense allowances for MP’s by 10%, cut unemployment payments in half for some categories of recipients and cancelled the traditional Christmas bonus for seniors. Forecasting that debt serving will take close to 12% of tax revenues, the Government accepts that it is in trouble.
There are signs of trouble everywhere. Shops boarded up, “last chance” sales, tensions on pay day in pubs – the day pink slips are more common than pink gins. But the biggest sign is that Dell, once the major employer with its activities connected to one in six jobs in Ireland, is leaving to move to Poland to focus on Russia and emerging economies and spend more of its resources in Asia. The closure of its manufacture plant in Limmerick took 1,900 jobs. While it is leaving some activities in Limmerick, the work that supported the core economy of the region is gone.
Ireland is not the worst case in the Europe in terms of being challenged by the recession – that honour goes to the Ukraine, which is struggling to meet requirements for an IMF bailout, though a loan has now been agreed. Iceland, dramatically affected by the sub-prime collapse of credit, is a close second. But Ireland is the most symbolic. The Celtic Tiger, as it was known, had a reputation for outstanding economic performance. In 2005 it could boast being amongst the world's wealthiest countries since its economy grew nearly five-fold since 1973. It boasted one of the world's highest levels of GDP per capita, some 20 percent above the European average—while 30 years before it was 35 percent poorer than the average. It was a role model for focused innovation and structural supports for industry development – policy tourists loved going to Ireland and then using it as a case study of how to run an economy.
How the mighty fall. Some residents of Dublin think that this challenges now faced by this small country of just over two and a half million people is retribution for not supporting the EU constitution in a referendum in 2008. Others think that it is due to the caprices of corporations, like Dell, who will move an entire factory to save a few million here and there – this after eighteen years of claiming that Ireland was by far the best place it could be. Those who work at the forefront of economic policy and understand these dynamics claim that they are victims of the irresponsibility of US financial institutions.
But it doesn’t matter. People are hurting, families and struggling. Citizens are confused by how quickly a truly vibrant economy could go sour. The government is caught between a rock and a hard place – it has to be fiscally responsible, otherwise the economy is at risk, but it also has to help its people.
One serious concern is that many of the young unemployed will be lured to a life of crime, linked to the work of the “real IRA” – the body insistent on unification of Ireland, but who funds its activities through drugs and protection rackets. Recent shootings north of the border are seen by some as a resurrection of old struggles.
A tough budget, with strong signals of stringency and belt-tightening, coupled with a focused innovation strategy may be the way to proceed – it is certainly what is happening – but it will be a long haul. On the road to recovery, many will be injured and much will need to be repaired. It will be tough.
What is impressive is that the Irish politicians from the Prime Minister down are confronting the issues head on. Promoting austerity is seen as responsible economics. Downplaying rhetoric and not engaging in the blame game is creating a social context where there is a reluctant acceptance that what has to be done has to be done. There is anger – just discussing these issues near the Guinness brewery brought out passion and fear – but there is also understanding.
For now, the Celtic Tiger is not roaring and Ireland may no longer be “king of the jungle” of economic policy and innovation strategy. But it will be back. The Irish are very resilient and they know what it took to build one of Europe’s most vibrant economies. They will dust off their wounds and start again. The tiger may be quiet, but it is not dead.