Economic history of the Republic of Ireland

From Wikipedia, the free encyclopedia
Jump to: navigation, search
The Irish pound (Punt) served as the Republic's currency from 1979 until 2002.

The state described today as the Republic of Ireland seceded from the United Kingdom of Great Britain and Ireland in 1922. The state was plagued by poverty and emigration until the mid-1990s. The 1990s saw the beginning of unprecedented economic success, in a phenomenon known as the "Celtic Tiger", which ended with the onset of a severe recession, the Irish financial crisis. It also led to Ireland being the most indebted country in the European Union.[1]

Effects of revolution and partition[edit]

After the War of Independence, 26 counties of Ireland gained independence from the United Kingdom as a dominion called the Irish Free State – but the 6 north-eastern counties remained in the UK as Northern Ireland. In 1937 the Irish Free State was re-established under its current name, Ireland.

A study of Irish share prices in 2013 indicates that an historic high point had been reached in the 1890s, with a subsequent decline to 1930.[2]

There had already been a significant economic divide between the northeast 6 counties and the rest of Ireland, but following partition both regions further diverged. In the short term, this was accentuated by the nationalist policy of boycotting northern goods in response to attacks on Catholics and nationalists in Northern Ireland.[3]

Partition had a devastating effect on what became Ireland's border area. County Donegal, for example, was economically separated from its natural regional economic centre of Derry. The rail network struggled to operate across two economic areas, finally closing across a vast swath of Ireland's border area (the only cross-border route today is between Belfast and Dublin).[4]

However, overall it has been judged that, "the economic effects of partition were probably slight, certainly less significant than other economic forces, both national and international".[5]

The Free State had the advantage, not possessed by Northern Ireland, of fiscal independence but the violence and disruption of the years 1919-1923 had caused a great deal of economic damage. As a result of the Civil War of 1922-23, the Free State started out with a very serious budget deficit, which was not fully cleared until 1931.[6]

1922-1960s[edit]

The establishment of the Irish Free State gave rise to the first serious attempt since the 1890s to industrialise the south of Ireland, but always with scant resources. Farming became orientated around pasture rather than tillage, with the increased processing of products and the export business. The country was gradually electrified and new state-owned factories were encouraged, such as the Irish Sugar Company in Carlow.

Frank Barry and Mary F. Daly have argued that :

Ireland was a largely agrarian economy, trading almost exclusively with the UK, at the time of the Great Depression. Beef and dairy products comprised the bulk of exports, and Ireland fared well relative to many other commodity producers, particularly in the early years of the depression.[7][8][9][10]

During the late 1930s the Fianna Fáil government began a disastrous dispute with Britain over the payment of land annuities, called The Economic War. The Irish state refused to continue paying land annuities, Britain put tariffs on Irish beef, and the Free State retaliated by imposing tariffs on British consumer goods; this "economic war" was resolved in 1938.

From 1932 Éamon de Valera abandoned free trade, pursued a protectionist policy and sought self-sufficiency, but the country was not wealthy enough to make this a success. This led to the state taking control of private interests in the name of the public interest - nationalisation and monopoly creation similar to that in vogue at the time in many countries. Many of the industries which were brought under government control at the time remain under 'semi-state' control today - others were sold in the 1980s and 1990s whilst others simply were downsized or closed when the economic reality became apparent.

1960s[edit]

In the 1960s the economy greatly expanded, under the leadership of Seán Lemass, many rehousing schemes (including Ballymun) were started to clear the Dublin tenements; the Industrial Development Authority refocused on high technology and foreign direct investment was encouraged. Education was also reformed to a large extent, the state built a RTC system and later two NIHE institutions; both systems greatly expanded education, in particular technical education, university education was also reformed and expanded. Entry into the European Economic Community (forerunner to the European Union) in 1973 also added to Ireland's economic prospects; 90% of Ireland's exports went to Britain.

Professor Garvin[who?] has found that Lemass suggested and enabled protectionism from 1932, and then was unduly credited when he chose to revert to a free trade policy after 1960.[11]

The 1968 Buchanan Report was a significant report on the regional dimension to economic planning which had largely been ignored. The report, prepared by Colin Buchanan and Partners, investigated and recommended on the social and economic sustainability of industry in the regions. The reports recommended a limited number of development centres throughout Ireland, which would have a minimum self-sustaining size. This became quite controversial as there were fewer than a dozen of such places recommended. In the end local politics and patronage won out and the report was largely dropped with industry being ineffectively dispersed as local need arose.

1970s[edit]

There were a series of three major Irish bank strikes between 1966 and 1976 in all totalling about a year affecting most of the retail banking sector. Surprisingly these had very little effect on the growth of the economy.

However the boom did not last for long. Industrial relations disputes, inflation from the oil crises of 1973 and 1979, new capital taxes and poor management of the economy by the government took their toll in the 1970s. By the 1980s Ireland was referred to as the 'sick man of Europe' .[12]

1980 to early 1990s[edit]

The 1980s in the Republic of Ireland was one of the state's bleakest times. An extremely irresponsible budget by the majority Fianna Fáil government in 1977, which included abolition of car tax and borrowing to fund current spending, combined with some global economic problems to ruin the Irish economy for most of the 1980s, causing high unemployment and mass emigration. The Charles Haughey and Garret FitzGerald governments made this bad situation much worse with more massive borrowing and tax rates as high as 60% (with one Fine Gael finance minister suggesting people were not being taxed enough). After joining the ERM in 1979, Ireland was also saddled for much of the 1980s with an overvalued currency, which wasn't rectified until the 1986 devaluation. Much of the capital borrowed in the 1980s went towards propping up this overvalued currency. Foreign investment, in the form of risk capital, was discouraged by all the evident difficulties.

This was also an era of political instability and extreme political corruption, with power alternating between Fianna Fáil and Fine Gael, with some governments not even lasting a year, and in one case, three elections in eighteen months. The problems were eventually dealt with starting in 1987 under a minority Fianna Fáil government but with help from the opposition led by Alan Dukes of Fine Gael under what was known as the "Tallaght Strategy", with economic reform, tax cuts, welfare reform, more competition and a reduction in borrowing to fund current spending. This policy was largely continued by succeeding governments. Considerable support from the European Union was the only positive aspect.

The "Celtic Tiger" (1995–2007)[edit]

Main article: Celtic Tiger

In the 1990s, the Republic's economy began the 'Celtic Tiger' phase. High FDI rate, a low corporate tax rate, better economic management and a new 'social partnership' approach to industrial relations together transformed the Irish economy. The European Union had contributed over €10 billion into infrastructure. By 2000 the Republic had become one of the world's wealthiest nations, unemployment was at 4% and income tax was almost half 1980s levels. During this time, the Irish economy grew by five to six percent annually, dramatically raising Irish monetary incomes to equal and eventually surpass those of many states in the rest of Western Europe.

Over the past decade, the Irish government has implemented a series of national economic programmes designed to curb inflation, ease tax burdens, reduce government spending as a percentage of GDP, increase labour force skills, and reward foreign investment. The Republic joined in launching the euro currency system in January 1999 along with eleven other European Union nations. The economy felt the impact of the global post-Dot Com economic slowdown in 2001, particularly in the high-tech export sector – the growth rate in that area was cut by nearly half. GDP growth continued to be relatively robust, with a rate wc of about 6% in 2001 and 2002 – but this was expected to fall to around 2% in 2003.

Economic downturn (2008–2013)[edit]

In July 2008, a predicted €3bn shortfall in 2008 annual government revenues[13] led to the announcement of 440m reduction in Government spending.[14] In September, due to continuing revenue shortfalls, the 2009 budget was advanced six weeks to October 2008[15] and Government statistics showed that the Irish economy, with quarterly GDP falls of 0.3% and 0.5%, had entered a recession at the start of 2008, for the first time since 1983,[16] becoming the first of the Eurozone economies to officially do so during the global Economic crisis of 2008.[17]

On budget day, Finance Minister Brian Lenihan stated that the General Government deficit would be 7% of GDP in 2008, and would be kept to 6.5% (or €12bn) in 2009[18] in contrast to a Government surplus of €5.2bn in 2006.[19]

In April 2010, following a marked increase in Irish 2-year bond yields, Ireland's NTMA state debt agency said that it had "no major refinancing obligations" in 2010. Its requirement for €20 billion in 2010 was matched by a €23 billion cash balance, and it remarked: "We're very comfortably circumstanced".[20] On 18 May the NTMA tested the market and sold a €1.5 billion issue that was three times oversubscribed.[21] By September 2010 the blanket guarantee instituted in September 2008 by the Credit Institutions Financial Stabilisation Act was expiring, and the Irish banks could not raise capital except as part of the Eligible Liabilities Guarantee, a less comprehensive guarantee scheme. In addition to the ongoing government deficits and the wider financial crisis, this had a negative impact on Irish government bond rates, which rose rapidly from 5% for 10-year bonds in July to 9.3% by November. The government started negotiations with the ECB and the IMF, although initially denied that these were anything other than exploratory.

On the evening of 21 November 2010, the then Taoiseach Brian Cowen confirmed that Ireland had formally requested financial support from the European Union's European Financial Stability Facility (EFSF) and the International Monetary Fund (IMF),[22] a request which was welcomed by the European Central Bank and EU finance ministers.[23] The request was approved in principle by the finance ministers of the eurozone countries in a telephone conference call.[24] Details of the financial arrangement were not immediately agreed upon, and remained to be determined in the following weeks,[25] though the loan was believed to be in the region of €100 billion, of which approximately €8 billion was expected to be provided by the United Kingdom.[23]

On 28 November, the European Union, International Monetary Fund and the Irish state agreed to a €85 billion rescue deal made up of €22.5 billion from the European Financial Stability Mechanism (EFSM), €22.5 billion from the IMF, €22.5 billion from the European Financial Stability Facility (EFSF), €17.5 billion from the Irish sovereign National Pension Reserve Fund (NPRF) and bilateral loans from the United Kingdom, Denmark and Sweden.[26]

The "Celtic Phoenix" (2014–)[edit]

Main article: Celtic Phoenix

Journalist and satirist Paul Howard coined the term "Celtic Phoenix" for his fictional Ross O'Carroll-Kelly character.[27] It refers to the concept of a phoenix rising from the ashes of the Celtic Tiger, which ended with the post-2008 Irish economic downturn and related banking crisis. It has since been used occasionally by some economic commentators and media outlets to describe the economy.[28][29]

Recent Government Budget balances[edit]

(Euro billions)

Year Income Expenditure Surplus(Deficit) GDP[30] % GDP Ref
2003 34.4 35.4 (1) x x [31]
2004 37.5 37.5 0 158.2 0% [32]
2005 40.8 41.3 (0.5) 167.7 (0.3%) [33]
2006 48.0 45.8 2.3 176.7 1.3% [34]
2007 49.3 50.9 (1.6) 186.6 (0.9%) [35]
2008 43.0 55.7 (12.7) 180 (7%) [36]
2009 35.3 60.0 (24.6) 166.3 (14.8%) [37]
2010 36.2 55.0 (18.7) 156.0 (12.0%) [38]
2011 39.3 64.2 (24.9) 161[39] (15.5%) [40]

See also[edit]

References[edit]

  1. ^ Patrick Barkham (26 May 2010). "The victims of Ireland's economic collapse | World news". London: The Guardian. Retrieved 2013-10-14. 
  2. ^ http://www.economics.ox.ac.uk/materials/papers/13028/Grossman%20120.pdf
  3. ^ Industry, Trade and People in Ireland, 1650-1950: Essays in Honour of W.H ... - Google Books. Books.google.ie. Retrieved 2013-10-14. 
  4. ^ The Troubles: Ireland's Ordeal and the Search for Peace - Tim Pat Coogan - Google Books. Books.google.ie. Retrieved 2013-10-14. 
  5. ^ JR Hill, A New History of Ireland, p464-465
  6. ^ "Life and Debt – A short history of public spending, borrowing and debt in independent Ireland". The Irish Story. 2011-01-25. Retrieved 2013-10-14. 
  7. ^ Frank Barry and Mary F. Daly, "Concurrent Irish Perspectives on the Great Depression" (2010 ) [ online] ]
  8. ^ Frank Barry and Mary F.. Daly, "Irish Perceptions of the Great Depression" in Michael Psalidopoulos, The Great Depression in Europe: Economic Thought and Policy in a National Context (Athens: Alpha Bank, 2012) pp 395-424
  9. ^ See also B. Girvin, Between Two Worlds: Politics and Economy in Independent Ireland (Dublin: Gill and Macmillan, 1989)
  10. ^ Barry, Frank, and Mary E. Daly. "Irish Perceptions of the Great Depression" (No. iiisdp349. IIIS, 2011.) Online
  11. ^ Garvin T. Preventing the future Why was Ireland so poor for so long? Gill & Macmillan, Dublin (2004) pp45-46.
  12. ^ "Research from Canada’s leading public policy think-tank | Fraser Institute" (PDF). Fraserinstitute.ca. Retrieved 2013-10-14. [dead link]
  13. ^ "Govt figures show €1.5bn tax shortfall - RTÉ News". Rte.ie. 2008-07-02. Retrieved 2013-10-14. 
  14. ^ "Lenihan announces cuts to save €440m - RTÉ News". Rte.ie. 2008-07-14. Retrieved 2013-10-14. 
  15. ^ "Budget moved as economy worsens - RTÉ News". Rte.ie. 2009-01-30. Retrieved 2013-10-14. 
  16. ^ "AFP: Ireland is first eurozone nation in recession". Afp.google.com. 2008-09-25. Retrieved 2013-10-14. 
  17. ^ "Cowen predicting difficult period ahead - RTÉ News". Rte.ie. 2008-09-26. Retrieved 2013-10-14. 
  18. ^ http://www.irishtimes.com/newspaper/breaking/2008/1014/breaking81.htm
  19. ^ [1][dead link]
  20. ^ The Irish Times, 28 April 2010, p.18.
  21. ^ Irish Times, 19 May 2010, p.15.
  22. ^ Ireland confirms EU financial rescue deal, BBC News, 21 November 2010, archived from the original on 22 November 2010, retrieved 21 November 2010 
  23. ^ a b "Plan will have policy conditions - ECB". RTÉ News and Current Affairs (Raidió Teilifís Éireann). 21 November 2010. Retrieved 21 November 2010. 
  24. ^ "Euro zone ministers approve rescue package for Ireland", Irish Times, 21 November 2010, archived from the original on 1 December 2010, retrieved 21 November 2010 
  25. ^ "Ireland Asks for Aid From Europe, Minister Says", New York Times, 21 November 2010, retrieved 21 November 2010 
  26. ^ "Government Statement on the announcement of joint EU - IMF Programme for Ireland". Government of Ireland (Raidió Teilifís Éireann). 29 November 2010. Retrieved 29 November 2010. 
  27. ^ Sweeney, Tanya (19 December 2014). "Soapbox... Is the boom really back? ...and Is the so-called 'Celtic Phoenix' all it's cracked up to be?". Irish Independent. Retrieved 20 May 2015. 
  28. ^ "Rise of the Celtic Phoenix?". Shelflife Magazine. 16 September 2014. 
  29. ^ "Ireland is a spending nation once again as Celtic Phoenix rises". Irish Independent. 24 August 2014. 
  30. ^ Retrieved 3 July 2011[dead link]
  31. ^ "Exchequer statement for 2003 - Department of Finance - Government of Ireland". Finance.gov.ie. Retrieved 2013-10-14. 
  32. ^ "END-YEAR 2004 EXCHEQUER RETURNS - Department of Finance - Government of Ireland". Finance.gov.ie. Retrieved 2013-10-14. 
  33. ^ "STATEMENT OF EXCHEQUER SURPLUS/(DEFICIT) IN THE PERIOD ENDED 31 DECEMBER 2005 - Department of Finance - Government of Ireland". Finance.gov.ie. Retrieved 2013-10-14. 
  34. ^ "Exchequer Statement: Statement of Exchequer Surplus/(Deficit) in the period ended 31 December 2006. - Department of Finance - Government of Ireland". Finance.gov.ie. Retrieved 2013-10-14. 
  35. ^ http://www.finance.gov.ie/documents/exchequerstatements/2007/Dec2007.pdf
  36. ^ http://www.finance.gov.ie/documents/exchequerstatements/2009/excheqstatdec08.pdf
  37. ^ http://www.finance.gov.ie/documents/exchequerstatements/2009/echeqfinaldec09.pdf
  38. ^ http://www.finance.gov.ie/documents/exchequerstatements/2010/Enddecstatement.pdf
  39. ^ http://www.cso.ie/en/media/csoie/releasespublications/documents/latestheadlinefigures/qna_q42011.pdf
  40. ^ http://www.finance.gov.ie/documents/exchequerstatements/2011/enddecexcheqstat.pdf