The wounded tiger
I have been following Irish politics and economy for some time. I see so many similarities with our own way of managing our affairs, except that we tend to be more passionate and emotional with our politics. But I now realise that the Irish can be as...
I have been following Irish politics and economy for some time. I see so many similarities with our own way of managing our affairs, except that we tend to be more passionate and emotional with our politics. But I now realise that the Irish can be as passionate as us when political decisions impact their lives in a way that they did not predict.
The 10-year miracle of economic growth experienced in Ireland has made many old and new EU nations so envious of the Irish success. The new EU states sent various delegations to Dublin to discover the secret of the Celtic Tiger's economic success. But as often happens, when one examines the success of a country passing through an economic boom, one tends to overlook the cracks that sometimes exist, despite the seemingly unstoppable momentum of growth.
For far too long Ireland built its economic success too emphatically on the property industry. Cheap imported labour, a seemingly insatiable demand for more houses, a prosperous financial services industry, and a healthy flow of direct foreign investment helped the property industry to experience a long economic boom. Prices of property increased at a much faster rate than the very respectable economic growth rates.
Property owners felt they were really richer because their homes were valued at double the price they had bought them just a few years before. They therefore felt entitled to spend some of this unrealised gain by indulging in a lifestyle that they could otherwise not afford. Irish banks threw money at home buyers and consumers who started to believe that they were entitled to improve their lives through cheap credit.
This was all fine as long as the party lasted. But the party had to come to an end. Ireland experienced very high rates of inflation in the last few years. Many potential first-time buyers could not get on the property ladder because prices were simply unaffordable. More and more foreign investors were realising that Irish wages were becoming too high and they had better investment options in eastern European countries. The last straw that broke the Celtic Tiger's back was the economic slowdown in the markets where the Irish exported their goods and services - mainly the US and Europe.
When the bubble burst the new Taoiseach (Prime Minister) Brian Cowen had to admit that the time had come to tighten the belt and take corrective measures. In 2008 Ireland will have a budget deficit of 7 per cent, far in excess of the limits allowed by the EU for eurozone countries. A pragmatic approach had to be adopted to stop the excess of the past 10 years, but at the same time not to endanger an economic recovery through a too-strict fiscal policy.
Despite a projected budget deficit of 6.5 per cent for 2009, a tough budget was presented by the centrist Fianna Fail party that is the main party in the Irish governing coalition. No attempt was made to prop up the sagging property industry. There were other more important economic priorities.
However, some of the cost saving measures taken could simply not be stomached by most of the Irish. The single most controversial measure that made most Irish blow their top was the abolition of the automatic right to free medical care for people over 70.
I listened to a phone-in programme on the national Irish Radio on the internet just after the budget was presented in Parliament. The anger of ordinary people at this measure was palpable.
They asked how a modern country, built on the sacrifices of thousands of people, now retired, and who have not experienced much benefit from the economic miracle of the last 10 years, could subject its elderly people to the humiliation of a means test to qualify for free medical care.
Joe Behan, a Fianna Fail MP, symbolised the outrage experienced by most Irish people when he submitted his resignation from the ruling party, saying that he could no longer support a party that punished the weak in such a callous way.
This seemed to have created enough pressure for Brian Cowen to make a classical political U-turn. In a news conference he apologised to the Irish public about the distress caused by the original measure and announced much higher income thresholds for those over 70 who would be expected to pay for their medical services.
There are undoubted similarities between our own current economic situation and what is being experienced in Ireland. We will be wise to learn from the success of the Celtic Tiger, as well as from the mistakes committed by some politicians when this same tiger was wounded.
The 10-year miracle of economic growth experienced in Ireland has made many old and new EU nations so envious of the Irish success. The new EU states sent various delegations to Dublin to discover the secret of the Celtic Tiger's economic success. But as often happens, when one examines the success of a country passing through an economic boom, one tends to overlook the cracks that sometimes exist, despite the seemingly unstoppable momentum of growth.
For far too long Ireland built its economic success too emphatically on the property industry. Cheap imported labour, a seemingly insatiable demand for more houses, a prosperous financial services industry, and a healthy flow of direct foreign investment helped the property industry to experience a long economic boom. Prices of property increased at a much faster rate than the very respectable economic growth rates.
Property owners felt they were really richer because their homes were valued at double the price they had bought them just a few years before. They therefore felt entitled to spend some of this unrealised gain by indulging in a lifestyle that they could otherwise not afford. Irish banks threw money at home buyers and consumers who started to believe that they were entitled to improve their lives through cheap credit.
This was all fine as long as the party lasted. But the party had to come to an end. Ireland experienced very high rates of inflation in the last few years. Many potential first-time buyers could not get on the property ladder because prices were simply unaffordable. More and more foreign investors were realising that Irish wages were becoming too high and they had better investment options in eastern European countries. The last straw that broke the Celtic Tiger's back was the economic slowdown in the markets where the Irish exported their goods and services - mainly the US and Europe.
When the bubble burst the new Taoiseach (Prime Minister) Brian Cowen had to admit that the time had come to tighten the belt and take corrective measures. In 2008 Ireland will have a budget deficit of 7 per cent, far in excess of the limits allowed by the EU for eurozone countries. A pragmatic approach had to be adopted to stop the excess of the past 10 years, but at the same time not to endanger an economic recovery through a too-strict fiscal policy.
Despite a projected budget deficit of 6.5 per cent for 2009, a tough budget was presented by the centrist Fianna Fail party that is the main party in the Irish governing coalition. No attempt was made to prop up the sagging property industry. There were other more important economic priorities.
However, some of the cost saving measures taken could simply not be stomached by most of the Irish. The single most controversial measure that made most Irish blow their top was the abolition of the automatic right to free medical care for people over 70.
I listened to a phone-in programme on the national Irish Radio on the internet just after the budget was presented in Parliament. The anger of ordinary people at this measure was palpable.
They asked how a modern country, built on the sacrifices of thousands of people, now retired, and who have not experienced much benefit from the economic miracle of the last 10 years, could subject its elderly people to the humiliation of a means test to qualify for free medical care.
Joe Behan, a Fianna Fail MP, symbolised the outrage experienced by most Irish people when he submitted his resignation from the ruling party, saying that he could no longer support a party that punished the weak in such a callous way.
This seemed to have created enough pressure for Brian Cowen to make a classical political U-turn. In a news conference he apologised to the Irish public about the distress caused by the original measure and announced much higher income thresholds for those over 70 who would be expected to pay for their medical services.
There are undoubted similarities between our own current economic situation and what is being experienced in Ireland. We will be wise to learn from the success of the Celtic Tiger, as well as from the mistakes committed by some politicians when this same tiger was wounded.