Europe: Ireland the Economic Miracle

Europe: Ireland the Economic Miracle

Victor Lindeberg (Sweden)Victor Gustafsson (Sweden)Graeme Russel (Scotland)Ville Majander (Finland)Benedikt Scheckenbach (Germany)introducing1AgendaIntroductionBackgroundHistoryReligionThe Celtic TigerCauseIntroduction of the Euro & EU Aid Taxation & Industrial Policies Demographics & Geopolitics EffectsEconomyDemographic & Social Housing BubbleThe Downfall - End of the Celtic Tiger 2001-2003Conclusion / Outlook

Intro/General/CelticTiger summaryBenediktHistory/Religion /VicEU(VictorG)Cause tax, policyVG geopoliticsEconomic effect VilleGraeme social, employment, immigrationHousing bubbly=> bubble bursting=> banking scandals beneDown 2004 graemeConclusion ville

2The Island of Ireland

Capital is dublin

3Quick facts4.6 million Inhabitants Official languages: Irish / EnglishConstitutional GovernmentGDP per capita: 38,500 $Unemployment rate at 14%Public debt: 94.2 % of GDP157% of GDP Import/Export

A significant portion of the economic activity in irealnd consists of importing and then adding value to goods, especially technology infrastructure. Those goods are then exported as value added goods in chemicals and pharmaceuticals. Since local demand is restricted due to limited population companies were forced to enter foreign markets

4Quick facts Cont`d1801 Part of the UK1922 Indepence1973 Member of the EUPartition of the IslandRepublic of IrelandNorthern IrelandHigh level of education

In 1801 ireland became part of the ukBut the partition of the island into republic of ireland and northern ireland occurred in the 20th century.Since 1973 its member of the European union

9 world renowned universities and 14 institutes of technology45.0%Percentage of graduates to the population at the typical age of graduation

5History of Ireland.-A brief overview.First settlement 8000BCChristianity 5th century ADViking troubles 800 ADIreland becomes English. Henry VIII ca1530.17th century PlantationsThe first Great FamineThe first known settlement was as long ago as 8000BC when hunter gatherers arrived from Europe

St Patrick and other Christian missionaries arrived during the 5th century AD and subdued the indigenous Celtic religion.

In 800 AD there followed a burst of Viking invasions that caused havoc among the missionaries and monasteries. These attacks or invasions were made by Norwegian Viking who later continued to found some small settlements in Ireland, most famously Dublin.

During the 1530s King Henry the 8th decided to take Ireland under control for England. It was upgraded from a lordship that it had earlier been and became a kingdom in which Henry was voted king in the meeting of Irish parliament that year. There was however still much trouble in Ireland and the re-conquest for England was not complete until under the reign of King James the 1st.

During the 17th century there was much land confiscation and colonisation that was known as the Plantations. During this time English and Scottish Protestants were sent in as colonists to replace the earlier Irish Catholic land owners who had been forcibly removed earlier. This and the introduction of penal laws to encourage conversion to the protestant faith was carried out and led up to a period of time which was outlined by war and suffering for both the Catholics and the Protestants.

In the mid 18th century there was much antagonism from the Irish towards the English due to the economic situation in Ireland where more and more produce was exported and not produced for domestic consumption. This led up to a famine between 1740 and 1741 which caused the death of over 400000 Irishmen and the emigration of over 150000.

6United Kingdom of Great Britain and IrelandThe second Great FamineThe Irish war of IndependenceNorthern Ireland & the Irish Free StateThe TroublesThe national flag of the republic

History of Ireland.-A brief overview.During the 19th century there was created a merger between Ireland and England that was called United Kingdom of Great Britain and Ireland and this was also the century that had the second of Irelands Famines which struck with potato blight and that with the current laissez faire economics during the time lead to mass starvation and emigration once more. The population dropped from ca 8 million before the famine to under 4 million in 1911.

The period from 1916 to 1921 was outlined by much political troubles and violence. This period contained the Irish war of independence 1919 1921 and ended with partition in to Northern Ireland and the Irish Free State that later renamed itself to Ireland in 1937 and declared itself a republic in 1949.

The troubles

The national flag of Ireland is a tricolour of green, white and orange. This flag, which bears the colours green for Roman Catholics, orange for Protestants, and white for the desired peace between them, dates back to the middle of the 19th century.

7Hofstedes Cultural DimensionPower DistanceIndividualismMasculinityUncertainty Avoidance

Hofstedes Cultural DimensionCompare and discuss . Scale Goes up to 120Low powerdistance compared to chinaIndiviualsim is lower than usa but higher than chinaMasculinity is the highest compared to other states Uncertainty avoidance is quite low

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9Celtic Tiger Introduction

For its economic boom in the 90s it earned the name the celtic tiger and

10The Celtic TigerWhat happened?

1980sStrong FDIsReputation for high-quality manu-facturing1990sDevelop-ment of clusters in:ChemicalsICTPharma-ceuticals2000sAdvanced Manufactur-ing with high R&D content1970sEEC MembershipAdapted educational system1960sIDA grantsLow corporate taxes

to understand how this happened we have quick look at irelands backgroundIn 15 years it performed itself from one of the poorest to one of the richest countries in Europe. FDI and skilled labor due to educational policies combined with low corporate tax led to an enourmous growth of the economy.

IDA international development associationEec european economic community

11EU impactsJoined the European Economic Community (EEC) in 1973

In the end of the 1970s Ireland took action against currency fluctuations and joined in the European Monetary System

In 1999 the country entered the European Monetary UnionEU impactsBeing a member of the EEC/EU resulted in EU-backed aid money:Investments were done in:Agricultural sectorTelecommunicationEducationInfrastructure/High-technology

High-technology related TNCs started to view Ireland as a suiting and appropriate link between the U.S. and EuropeEU impactsIreland compared to U.K.

U.K. left the European Exchange Rate Mechanism (ERM) in 1992

U.K. did not join the EMU

TNCs preferred an English speaking country that was part of the euro-zone, instead of one that was not

Corporate taxation in IrelandLow taxation policies pursued by governments from 195610% on profits from 1981-200312.5% on profits for trading income 2003-25% for non-trading incomeResident companies pay corporate tax on global incomeNon-resident companies pay on Irish-sourced income onlyCorporate tax in the EU23.2% Average corporate tax in 2010Developed countries tend to have higher ratesAustria: 25%Finland: 26%France: 33.33%Spain: 30%UK: 20-27%Corporate taxation in the World

Unique possibilityLow taxation originally possible due to lack of industrial baseLowering taxes is difficultDeficits, cuts in established government programsImpossible for countries with heavy industrial baseIndustry requires infrastructure taxes required for upkeepEffects of Irelands tax-policyLow taxation attracts FDIMajor MNCs established in IrelandE.g. Google, Dell, Intel, MicrosoftTransfer of profits to Ireland (Tax-avoidance)Today, still used to lower tax liability Transfers not taxed for non-resident companiesComparably low income taxAttracts skilled labourIndustrial PoliciesSubsidies & Investment capitalIrish Government subsidises investment in IrelandEnterprise IrelandProvides support services for startupsFinancial, Technical, SocialInternational Financial Services Centre14,000 high-value jobsFavourable tax-rate from 1987-2005Offices for half of the worlds 50 top banks

Geopolitics and geographyAdaptation of government-funded higher education

Investments were made to expand the Regional Technical Colleges and for the building of two new universities

Large share of technical and science graduatesGraduates

Victor g22Geopolitics and geographyIreland had relatively high birth rates during the decades leading up to the Celtic Tiger period

Large proportion of women outside the work force during the 1980s resulted in an enlarged labour forceGeopolitics and geography Making Ireland accessible:Deregulating the airline market between Ireland and U.K.This resulted in an increase of passengers, tourist earnings, employments and further cut costs for business peopleThe IT/technology-industry itselfReal GDP per capita

Annual GDP Growth

Effects: EconomyRapid GDP growth7.8% to 11.5% from 1995 to 20004.4% to 6.5% from 2001 to 2007Some gains wiped away in the recessionUnemployment fell from 18% in the late 1980s to 4.5% in 2007Currently 14%...Debt/GDP ratio fellLevel of Debt remained constant but GDP rose

Government debtas a ratio of GDP

The stock marketISE surged from under 2,000 points to a high of over 10,000 points Currently at around 2,600

EmploymentUnemployment decreased from 18% in late 1980s to as low as 4.2% in 2000 Economic boom created jobs and had a positive impact on the labour force; increased from 1.2 million in 1993 to 1.8 million by 2003MNCs accounted for 47% of manufacturing employment Ireland dependent on MNCs for growth and employment

Unemployment Rate

graeme31ImmigrationDuring 1990s Irish population could not fill positions offered by the MNCs negative employment rateThe economic success of Celtic Tiger encouraged return of Irish emigrants as well as skilled labour from across EuropeIn 1996, for the first time in its history, Ireland had a positive net migration rateDemand for labour across various sectors, including construction, finance, IT and healthcare

Social Inequality Economic success can be contrasted with overall effect on societyHigh poverty rate compared to other EU member statesThe at risk of poverty rate increased between 1994-2005Disparity of income and unequal distribution of wealth epitomised by Michael Oleary

Housing Sector20 % of complete GNP during the boom

irish housing sector was 20% of complete economy GNP

34ConstructionConstructions of new buildingsEmployment: 126 000 (1998) 282 000 (2006)

demand not taken into considerationuncontrolled support of construction of new buildingDirect employment in construction rose from 126,000 in early 1998 to 282,000 in December 2006.

35Banklending110 Billion Euro in Mortages Collapse in 2008

irish inhabitants collected mortages from banks worth 110BN After the system crashed the irish state tried to use 80 billion euro to support the banks, which is about half of the yearly economic powerAnd which led to a collapse of the irish financial system and led to loss of 13% of the economic power

36HousesCollapse after 2008

irish state tried to use 80 billion euro to support the banks, (about half of the yearly economic force/power)which led to a collapse of the irish financial system and led to loss of 13% of the economic power37End of the Tiger2001-2003 downturn effect on Irish economyContributing factors to recessionGovernment attempt to maintain growthMNCs leaving a sinking shipEffect on housing MarketIreland today.-A brief summary.Recession since 2008Irish Banking ScandalsUnemployment an all time highMass emigrationIreland today:Today Ireland like most countries in Europe is in recession. This followed the great financial crisis of 2008 and is the first recession that Ireland has been in since the 1980s. It is both a financial and political crisis that stems from a series of Irish banking scandals.

Ireland was the first country in the Eurozone to enter recession and the government declared it in September 2008.

The highest number of people claiming unemployment in Ireland was recorded in January 2009 when it rose to 326,000.

The central statistics office estimated that there was 34, 000 people emigrating from Ireland during 2009 to 2010. A number unmatched since 1989.

39ConclusionsLessons from the phenomenonCompetitiveness via policies and taxationValue of educationApplicaple to other countries?Baltic-countries?Emerging Asian countries?RisksSudden collapse detrimental effectsMay compund social inequalityThank you for your attention