The limping EU tigers

The Irish and Spanish economies have been among the best performers in the EU for many years. Since 2000 new member states have been sending official delegations to Dublin to understand the formula behind the economic success of the Celtic Tiger. Everyone envied them and tried to emulate their magic formula.

Similarly, the Spanish economy under Socialist Prime Minister Josè Luis Rodrìguez Zapatero passed through an economic boom mainly fuelled by a property building expansion and the availability of cheap labour, mainly from North Africa and Eastern Europe. But both the Iberian and the Celtic Tigers are now limping. So where did things go wrong and, more important, what are the lessons to be learned by us in Malta to ensure that we do not face a similar destiny?

The Irish miracle in the last 10 years has been built mainly on property development which, in 2006, accounted for 15 per cent of GDP. At the same time, Irish industry could tap from the well-educated and skilled labour pool which became accessible when Poland and other East European countries joined the EU in 2004.

However, Ireland became a victim of its own success. The property bubble and the illusion of wealth fostered by property owners fuelled consumer spending which, in turn, put increasing pressure on inflation. This was a price worth paying when GDP growth averaged 6.5 per cent since 1994, but with the Irish Central Bank now predicting a GDP growth of just 1.9 per cent in 2008 serious cracks are beginning to appear in the Irish economic model.

One of the biggest mistakes committed by the Irish government is that it failed to invest in the country's social and physical infrastructure when the going was good. Now serious problems have accumulated in these areas and they need to be addressed. For instance, the Irish public health system is nowhere near as efficient or effective as the British NHS, which is available in Northern Ireland. Similarly, the Irish transport system is creaking under the pressure caused by the phenomenal economic activity of the last 10 years.

So what are the lessons to be learned by us in Malta from both the Irish and Spanish experiences?

Firstly, the more our economy is diversified, the better it will be for us. No doubt there is room for a flourishing house building industry, but we cannot rely on this solving the other problems of sluggish growth in other important sectors of our economy.

Another lesson, which the Irish have learnt and that we too need to learn, is that educational reform is a constant requirement and that you can never rely on past successes. In the last two decades Ireland has attracted some of the most technologically-advanced industries in IT, pharmaceuticals and medical instruments manufacturing.

But their business model is failing because the cost of doing business in Ireland is becoming increasingly unsustainable. Investors are now more prepared to set up business in Eastern European countries, China, India and in some cases even in Northern England.

Outperforming these countries on the educational front is one of the best strategies for continued success.

But perhaps the best lesson we can learn from both the Irish and Spanish experiences was well articulated by the outgoing Irish Taoiseach Bertie Ahern who, in a recent interview, spelled out the medicine that the Celtic Tiger needs to take to cure its limp: "the money we spend needs to be directed at improving our competitiveness."

If this advice is heeded, inflation will be controlled, the physical and social infrastructure will improve and wasteful bureaucracy will be kept in check. Can anyone really deny that we in Malta are facing similar challenges?