‘Leprechaun economics’: EU mission to audit 26% GDP rise

Widespread criticism about relevance of data showing surge in economic growth

The European Union’s statistics agency is sending a mission to Dublin  to investigate  Irish economic growth figures  which prompted claims of “leprechaun economics”. File photograph: Getty Images

The European Union’s statistics agency is sending a mission to Dublin to investigate Irish economic growth figures which prompted claims of “leprechaun economics”. File photograph: Getty Images

 

The European Union’s statistics agency is sending a mission to Dublin next month to investigate the Irish economic growth figures for last year which prompted claims of “leprechaun economics”.

An internal Eurostat document, circulated to Government officials last month, said that while initial explanations provided by Ireland for the 26 per cent increase in GDP “look plausible”, the Luxembourg-based body plans to follow up with its own verification process.

GDP is the estimated value of an economy’s total annual output.

“The Irish authorities have already indicated that they will provide full access to all information, including that under statistical confidentiality, to Eurostat staff,” the document, released to The Irish Times under the Freedom of Information Act, says.

The GDP revision on July 12th has prompted widespread criticism among economists about the relevance of the data, which has skewed various widely followed gauges, including government debt relative to the economy’s size.

Aircraft leasing

The surge included the impact of tax inversions, where typically US firms merge with Irish companies to gain a tax benefit; overseas contract manufacturing for an Irish-based company; and activities of the country’s huge aircraft leasing sector.

While the Central Statistics Office calculated GDP in line with Eurostat criteria, Nobel Prize-winning economist Paul Krugman famously said last month the Irish figures were best summed up as “leprechaun economics”. It also means that the Republic must contribute an additional €280 million to the EU budget.

“The CSO explained that the majority of the change in 2015 was caused by the relocation of certain major international companies to Ireland (from outside the EU) during the year,” according to the Eurostat document, adding that the CSO had carried out “intense” discussions with the unnamed companies to understand their activities.

The records released under FoI show the Department of Finance’s chief economist, John McCarthy, got an encrypted version of the data about two hours before it was released on July 12th and immediately sought to speak to the sender, Michael Connolly, a senior CSO statistician. No record of any such conversation was released.

A CSO spokeswoman said the organisation briefs named officials from the department and Central Bank in advance of the release of GDP data, in line with the European Statistics Code of Practice. No pre-briefings took place outside that formal process, she said.

IMF email

Another document shows that the International Monetary Fund sent an email, tagged “urgent”, days later to the Department of Finance seeking a conference call amid concerns about the impact of the data on its annual so-called Article IV review of Ireland.

“In a nutshell, there are some senior people within the fund that are now seriously questioning the merit of our Article IV going to the board [of the IMF],” it said.

In the event, the IMF published a supplementary note to the 91-page report on Ireland in July, saying the fund’s recommendations for officials were not affected by revision, which distorts the true standing of the economy.

Meanwhile, a high-level group examining the appropriateness of GDP data to measure the Irish economy is due to report by the end of October.

However, the Eurostat document said “it should be clear, nevertheless, that neither the Irish CSO nor Eurostat intend to publish any ‘alternative GDP’ data”.