Ireland’s tough road back

It doesn’t feel like a country in the grip of a lost decade, writes Peter Geoghegan, but beyond Dublin’s corporate office blocks and crowded city-centre bars lies another Ireland

Last weekend more than 50,000 people – many of them Scottish rugby fans – packed into the Aviva Stadium in Dublin to watch Ireland triumph over Scotland in the Six Nations. Erected on the site of the homely if rather anachronistic Lansdowne Road ground, the Aviva was built, in part, to show off brash, modern Celtic Tiger Ireland to the world.

Unfortunately, by the time then premier Brian Cowen opened the stadium in May 2010, the economy that bankrolled the Aviva was already on the rocks.

Today, the shining corporate offices of Google and Facebook in Dublin’s Docklands and the busy, bright young things in the Irish Financial Services Centre belie the reality that Ireland has yet to “the turn the corner”, to borrow a recurrent phrase of politicians in the lead-up to the banking crash that led the country to the brink of bankruptcy in 2008.

“The 2008 banking crisis was not caused by an outbreak of moral failure or individual weakness,” Irish historian Conor McCabe writes in the concluding chapter of his book Sins of the Father. It was structural and political forces – not “pockets of immorality” – that led to a bust of global proportions.

Subtitled Tracing the decisions that shaped the Irish economy, McCabe’s is a compelling account of the economic failings that dogged Ireland since independence, from the fateful decision to peg the punt to sterling for more than 50 years (a parable worth revisiting for some Scottish Nationalists) to the state-sponsored boom in construction and financial services that underpinned the Celtic Tiger’s ruinous second decade.

As McCabe avers, the response of Ireland’s political classes to the banking crisis has proved as disastrous as the policies that created it. On 30 September, 2008, the Irish government elected to guarantee almost all the liabilities of the state’s six financial institutions. The effect of this decision – which led indirectly to the €85 billion IMF/EU bail-out in November 2010 – are still being felt across just about every sector of Irish life today.

The scale of Ireland’s recession is worth reiterating. In 2009, GNP contracted by 11.9 per cent. In the same year, Gross Domestic Product shrank by over 7 per cent. That year, unemployment climbed above 10 per cent for the first time since 1997.

The vital signs from Ireland’s economy are more positive than they were when the European troika rolled into Dublin 18 months ago to agree the bail-out. Indeed, walking around the capital, Ireland doesn’t feel much like a country in the grip of a lost decade. The on-going boom in IT, particularly in the corporate sector, has ensured that an affluent, young middle class remains. Exports have grown steadily in recent years (although a new report issued by Ulster Bank warns exports will weaken in 2012 and GDP will increase by a paltry 0.4 per cent).

But beyond the corporate office blocks and the crowded city-centre bars lies another Ireland, one that profited little from the boom years and now finds it’s bearing the brunt of the Irish age of austerity.

A cursory glance at Irish unemployment figures bears this out. From the halycon days of the Celtic Tiger and full employment, official statistics have joblessness running at over 13 per cent for more than two years. Among young people and recent graduates, the numbers are even worse: for those under 25, unemployment stands at well over 25 per cent.

Headline unemployment rates mask the return of another facet of Irish life supposedly banished by the Celtic Tiger: emigration. The Economic and Social Research Institute in Dublin estimates that more than 1,000 people are leaving Ireland every week. A report released last year by the National Youth Council of Ireland suggested 70 per cent of young unemployed Irish people believed they would emigrate.

Even the signs of economic life in Ireland are not as positive as they appear at first viewing. The bulk of the growth in Irish exports is attributable to the presence of significant numbers of multinationals who use few if any Irish raw materials.

Attracting large foreign firms to Ireland with a generous tax regime and grants has been, and remains, a mainstay of Irish economic policy. However, the value added by these multinationals to Ireland’s indigenous economy is less clear-cut.

According to McCabe, in 2008, multinationals accounted for a whopping 88 per cent of all Ireland’s merchandise export sales. Yet these same companies provided just 7 per cent of total employment. Despite total sales of almost €110bn, they paid about €2.8bn in corporation tax.

Meanwhile, the detritus of Ireland’s laissez-faire housing policy, encouraged by massive tax breaks from central government during the boom years, is littered across the country’s fabled green fields. The problem is particularly extreme in rural areas in the Midlands: the total number of houses in sparsely populated counties Longford, Cavan, Roscommon and Leitrim increased by 50 per cent between 2002 and 2009. Many of these properties now lie vacant on unfinished estates. According to the 2011 census, 294,000 properties in the state – some 15 per cent of total housing stock – are habitable but vacant.

After three and a half years of austerity budgets, which have cost thousands of jobs, there are signs that the Irish population is growing restive. The €100 “household charge”, introduced in last December’s budget as an interim property tax, has proved unpopular, with very low rates of compliance. A more extensive property tax, due to be introduced in the coming months, could prove even more divisive.

All this is bad news for EU mandarins. Ireland is due to vote in a referendum in May or June on the European Fiscal Compact, designed to stabilise the eurozone by enforcing strict budgetary controls on EU nations. The latest opinon polls, published in the Sunday Business Post, suggest 44 per cent would vote in favour, but 29 per cent remain undecided and support for Sinn Fein, who oppose the treaty, has grown substantially.

Recent opinion polls put the republicans on 25 per cent, behind only Taoiseach Enda Kenny’s Fine Gael. Although coalition partners Fine Gael and Labour still enjoy strong backing – and Mr Kenny is personally very popular – support for opponents of austerity is growing.

Leinster House, where the parliament sits, will hope the EU treaty vote will offer an opportunity to renegotiate with the bail-out lenders. The EU-IMF loan was made at a punitive 5.8 per cent, an interest rate that is crippling growth in the economy. Currently, the Irish government is attempting to reschedule about €31bn of promissory notes for its failed banks.

“What we are looking for is a deal to pay them back over a longer period, possibly at a lesser rate of interest,” deputy finance minister Brian Hayes said yesterday. “I would ask people in fairness to be patient with us on this issue.”

Beyond the corridors of power, the new economic reality has produced some creative responses. Comedian Abie Philbin Bowman – who, fittingly, will be appearing at the Glasgow Comedy Festival this Saturday, St Patrick’s Day – is returning to a tried-and-tested financial model: barter.

“I’m planning a tour of Ireland this summer that runs entirely on barter,” Bowman says. “All my shows are free to the public, and afterwards people are asked to make a donation. If they can’t afford to give money, they can offer me a hot meal or somewhere to stay. In the past, one person offered me juggling lessons, another taught me how to fly-fish. It’s a very different experience and a really interesting way of seeing the country.”

The Aviva isn’t down as a date on the tour, yet.

This article originally appeared in the Scotsman, March 15