Irish strive to keep Celtic 'Tiger' feisty
The victors in Thursday's election will face formidable challenges as Ireland's economy begins to slow.
By Michael Seaver | Contributor to The Christian Science Monitorfrom the May 24, 2007 edition
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Dublin, Ireland - The campaign posters that hang from lampposts around Ireland are full of numbers. They promise 2,000 more public hospital beds, 2,800 more police on the streets, or 4,000 new primary-school teachers, attempting to woo voters in Thursday's election.
The result is predicted to be the closest in years, with Taoiseach [Prime Minister] Bertie Ahern's Fianna Fáil party and the opposition party Fine Gael likely to be the largest two groups elected to a coalition government. But when the votes are finally counted, those election promises will have to rely on more important numbers: the country's balance sheet.
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For years, Ireland's "Celtic Tiger" has been hailed as a fiscal miracle that brought the once-impoverished country to the top rungs of Europe's economy. Whereas it once struggled to be self-sufficient – losing many Irish to emigration – today Ireland is a top destination for immigrants eager to fuel its engines with low-wage labor.
But with the economy slowing down and Ireland's competitiveness slipping, the winners of this week's election will face difficult decisions in the next five years. In March, a report by the Economic and Social Research Institute (ESRI) predicted that economic growth next year would fall to its lowest rate since 1993 and linked this to a deflating construction sector.
"The slowdown in construction will be the biggest challenge the Celtic Tiger has faced," says Ronan Lyons of the National Competitiveness Council (NCC), an independent body that advises the Taoiseach (pronounced TEE-shock). "It faced a test [after 9/11] but bounced back quite well, mainly due to domestic housing construction." Some say this has led to over-reliance on this sector: a Central Bank estimate shows spending of €37 billion ($50 billion) – a quarter of Ireland's gross national product – on building and construction in 2006.
Another linchpin Ireland had relied on – competitiveness fueled in part by relatively low wages – has also been weakened, threatening foreign direct investment.
"Rising costs are the single worsening problem," says Mr. Lyons. "The weakening dollar between 2000 and 2003 hit Ireland more than anywhere else in Europe. Combined with that, you had long-running economic growth feeding wage expectations, leading to a situation where Ireland has an inflation rate that is about twice the European Union average."
Last year, hourly earnings in Ireland grew by 5.3 percent, compared with 2.6 percent in the eurozone – putting Ireland at a competitive disadvantage not only to India and China's emerging economies, but EU countries as well. Irish prices have also gone up, fueled by a rising demand in areas like housing, commercial rents, and infrastructure.
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