The Irish Miracle

Presenters:Ana Dobrosavljevik

Vesna Dejanovska Mariya Mladenova

Ireland Underperforming(1960s-1980s)

Problems: high unemployment (18%) huge indebtedness (nearly 130% of GDP) stagnating GDP growth

Causes: government protectionist policies increasing government intervention lax fiscal policy increased government sector negative remittances from the UK

Jan 1988

From a Laggard to a Leader

Economic miracles do happen—over the 1990s Ireland outpaced

the world

The Celtic Tiger… or the Prudent

GovernmentMay 1997

The Miracle Rationalized

Shift of government focus from inward to outward solutions—promoting foreign direct investment (FDI)

revised fiscal policy—government spending cuts lowered corporate tax (Ireland-10%, since 2003-12.5%, other EU

countries 30-40%) offered subsidies for recruitment, employee training, research

and development, etc. social partnership… joined the EU in 1973… Joined the EMS in 1979 upon which Ireland received special aid

Social Partnership -What does it really mean

No exact definition – a new form of of inclusive corporatism shifted national agreements away from the narrow matter of wage

regulation to the broader theme of social inclusion made Irish public policy less bureaucratic and ‘opened up’ to inputs

from civil associations. decentralized policy implementation organized negotiation process into a four pillar structure : a)Trade Union Pillar b)Business and Employer Pillar c)Farming Pillar d) Community and Voluntary Pillar (included for first time in 2000)

Social Partnerships since 1987

Program for National Recovery (1987-1990) Program for Economic and Social Progress (1990 –

1993) Program for Competitiveness and Work (1994 –1997) Partnership 2000 (1997 –2000) Program for Prosperity and Fairness (2000 –2003) Sustaining progress (2003 –2006) Towards 2016 (2006 –2016)

Program for National Recovery (1987-1990)

first of seven successive partnership agreements cornerstone of the program “system of centralized pay

bargaining” Effective agreement achieved between rigid labor

unions, employees and government. shifted national focus to one common goal of attracting

FDI and improving the country's economic condition as fast as it can.

Employment and unemployment levels remained virtually unchanged - concerns that this was a form of “jobless growth.”

“Towards 2016” - New 10 year Social Partnership Agreement

Currently, Ireland is dealing with the problems with excessive immigration

population has been growing again to a modern high of 3,917,336 in 2002

“Towards 2016” building a new social policy perspective, founded on the lifecycle approach

• .

Impact of EU’s Structural and Cohesion Funds on Ireland’s Development

The Structural Funds help the regions to reduce the disparities between the levels of development

The Cohesion Fund, which was set up in 1993, assists Member States whose per capita GDP is below 90% of the Community average

Since 1973 (the year of joining the EU), Ireland gave €10 billion to the EU budget, and received €43 billion, out of which over €17 billion from Structural and Cohesion Funds

National Development Plans (NDP)/ Community Support Frameworks (CSF)

1989-1993 and 1994-1999o Ireland constituted a single

NUTS II region o Promotion of national

development o "the cumulative long-term

structural impact of the first two CSFs was to raise Ireland's GNP level by about two percentage points above the level that it would be without them" (Economic and Social Research Institute)

2000-2006 and 2007-2013 two NUTS II regions regional development Parts of Ireland exceeded the

eligibility criteria for Objective 1 status

Declining EU Structural Aid

Data taken from http://www.iro.ie/EU-structural-funds.html

29,9141,2

6,550

10

20

30

40

50

Structural/Cohesion Funds, As Percent of NDP

1989-1993

1994-1999

2000-2006

Cohesion Fund

Prior to the 2004 enlargement, 4 member states benefited from it: Spain, Portugal, Greece and Ireland

None of the other poor countries in the EU which have also received subsidies have achieved anywhere near the rate of growth the Irish economy experienced (Portugal averaged 2.6% GDP growth, Spain averaged 2.5% and Greece averaged only 2.2% growth from 1990-2000)

Cohesion Fund budget allocations for the 2000 - 2006 period

( at 1999 prices ) In millions of €

How do the Structural Funds contribute to Ireland’s development?

increase the net capital inflow into the economy

co-finance structural measures for

regional development infrastructure human resources

development

Timing is important: increase in Structural Fund aid in 1989 was fortunate for Ireland because at that period Ireland had postponed important investments due to budget constraints and it helped the country better prepare for Foreign Direct Investments

The selected investment priorities of Structural aid have contributed to the attractiveness for FDI, by improving the competitiveness, raising the productivity and efficiency, and improving the labor's quality

Why Structural Funds have been so effective in Ireland? Could other member states achieve the same outcomes of structural aid?

during the first two CSFs (1989-93 and 1994-99) Ireland had quite a unique position in that the entire Republic of Ireland was a single Objective 1 region

Ireland was a beneficiary of Structural Funds at a time when

there was only a small number of other Objective 1 countries

Investment priorities, in particular education and HR

Human resources investment – a key factor for attracting FDI facilitated by the Structural

Funds “Ireland is unique among

cohesion countries in this regard, having allocated up to 35% of its Structural Funds to human resource investments, compared with an average of around 25% for other cohesion countries”

Education system ranked 2nd in terms of meeting the needs of a competitive economy (IMD World Competitiveness Yearbook 2005)

Ireland spends more on education and higher education as a percent of total public expenditure than the other EU states

Education – comparison with other countries

Public expenditure oneducation as a % of total public expenditure

Ireland 13.2%Portugal 13.1%UK 11.8%France 11.5%Spain 11.3%Belgium 11.0%Netherlands10.4%Germany 9.7%Italy 9.4%Greece 7.0%

Source: OECD - Education at a Glance 2002 (1999 data)

Key sectors of development and FDI attractiveness

Pharmaceuticals Software and

hardware Telecommunication

services

Exports as a % of GDP

3756

65 68

0

20

40

60

80

1973

1983

1993

2004

46

16 11 146 7

0

10

20

30

40

50

Irish Exports 2005 Pharmaceuticals

Computer equipment

Machines/variousequipment

Misc. manufacturing

Others

Food/live animals

Ireland in the 1990s…

Government efforts + EU Policies =

..."magnet" for inward investment flows that "underpinned a radical restructuring of the

country's industrial base and led to rapid growth in both imports and exports."

"We are very satisfied with the working conditions in Ireland," said Paul Logue, general manager of

Pfizer Ireland Pharmaceuticals

FDI scale

with 1 % of EU population Ireland, attracted 25 % of all new U.S. investment in the EU over the last decade

by 2004 Foreign-owned sector accounted for 87.6% of Irish exports

71.6% of total exports came from two sectors Chemicals/Pharmaceuticals and ICT/Machinery

Foreign-invested firms exceed 1,200, around 580 of them are U.S. In 2003 U.S. investment in Ireland was 2.5 times U.S. investment

in China U.S. companies - Microsoft, IBM, Oracle, Siebel, Dell, Accenture,

AOL, eBay, Nortel and Ericson - either operate out of Ireland or house their European headquarters there

FDI contribution: solved Irish problems

increase in exports job creation (by 2002 40% of Irish workforce was

employed at foreign-related multinationals) promotion of management and technology transfer generated impressive GDP growth

Key indicators 2006 2007 2008 2009 2010 2011

Real GDP growth (%) 6.2 5.4 3.6 3.2 3.3 3.4

Consumer price inflation (av; %) 3.9 3.4 3.0 2.6 2.2 2.2

Consumer price inflation (av, %; EU harmonised measure)

2.7 3.0 3.0 2.6 2.3 2.3

Budget balance (% of GDP) 2.2 1.0 0.3 -0.3 -1.1 -2.1

Current-account balance (% of GDP) -4.1 -4.3 -3.3 -2.6 -2.1 -1.9

Short-term interest rate (av; %) 3.1 4.0 4.1 4.1 4.1 4.1

Exchange rate US$:€(av) 1.26 1.33 1.35 1.30 1.27 1.26

Exchange rate US$:€(year-end) 1.32 1.37 1.32 1.28 1.27 1.26

Exchange rate¥:€(av) 145.93

151.53

139.31

124.00

118.75

115.66

Projections

The Economist Intelligence Unit

Thank You for the attention!