Ireland is often lumped together with the Southern European crisis countries. That was until recently justifiable since it too is a euro area country that has had a very weak economy and received a bailout due to soaring yields on its government bonds.
Yet Ireland has the recent year come to diverge in a positive way from Portugal, Spain, Italy and Greexe. Its borrowing costs have dropped dramatically so that they now potentially could return to the bond market. True, yields have dropped dramatically in Greece, Portugal and Italy too, but in Greece and Portugal they are still at punitive levels and Italy never saw yields rise high enough to force them to leave the bond market.
And though current account deficits in Southern Europe has dropped dramatically in the latest year, particularly in Greece and Portugal, they still have external deficits. By contrast, Ireland now has a large and rapidly rising current account surplus, €6.9 billion, or more than 5% of GNP, up from a surplus of just about €1.5 billion a year earlier and a deficit of more than €10 billion at the height of its housing bubble in 2007.
Though domestic demand is still falling somewhat, the increase in its external surplus was big enough for GNP to increase 3.7%. Contrast this with the significant declines in economic activity in Southern Europe in general and Greece in particular. It is also in fact stronger than in all non-Baltic EU countries.
The recovery in the labor market has so far been a lot weaker than the recovery in GNP, but unemployment has in fact in recent months declined, from 15% in February to 14.6% in November. Contrast this with the increases in the unemployment rates in Souther Europe by several percentage points.
As with the Baltic states, the Irish certainly shouldn't feel content with their current economic state of affairs. 14.6% is of course still an unacceptably high unemployment rate, and because GNP fell by 9.7% between 2007 and 2011, it is still 6.3% lower than 5 years ago. But things have at least finally started to improve, unlike in Southern Europe.