Ireland’s rebound is European blarney
In a column written for the New York Times, Fintan O’Toole argues that Ireland is suffering to maintain an unreal image of slimmed-down perfection
I was talking just before Christmas to a young man who sells shoes in a department store in Dublin. He told me that a television news crew had filmed interviews in the store the previous day.
They wanted to know if sales were picking up during the vital holiday period, indicating that the battered Irish economy was, after five grim years, on the rise at last.
Most of his colleagues said that, actually, sales were rather sluggish. One was more hopeful and said that there were signs of improvement. When the young man watched the TV news that night, he was not entirely surprised to find that the only interview that had made the cut was the one with the optimist.
Everyone wants Ireland to be a good-news story, proof that a willingness to take the pain of prolonged austerity will be rewarded in the end. Ordinary citizens are hungry for some hope. The government, in the words of Deputy Prime Minister Eamon Gilmore, was “determined that Ireland would be Europe’s success story”.
An influential board member of the European Central Bank, Jörg Asmussen, says: “The Irish program is a success story.” Chancellor Angela Merkel of Germany praised Ireland as an example of how crisis countries could turn themselves around.
The only problem is that, for most of us who actually live here, Ireland’s success story feels less like “The Shawshank Redemption” and more like “Rocky.” We haven’t been joyously liberated; we’ve just withstood a lot of blows. We’re still standing, but we’ve taken so many punches that it’s hard to see straight.
Yes, things are finally looking up, but the hopeful vision is clouded by two nagging questions. Did they need to be so bleak for so long? And has the harsh medicine actually cured Ireland’s ills?
For conservatives, in particular, Ireland is the Tyra Banks of nations: a model country. The only problem is that they can’t quite decide what Ireland is a model of.
For a long time, when Ireland was booming, it was the perfect face of light regulation and low taxes. (With impeccably bad timing, Senator John McCain cited Ireland’s low corporate taxes as a model for the United States in his presidential election debates with Senator Barack Obama in 2008 - just as Ireland was sliding into crisis.) Now, with Ireland tentatively emerging from its long slump, it is being cited as the great exemplar of the virtues of austerity.
As the German finance minister, Wolfgang Schäuble, a fiscal hawk, put it in October: “Ireland did what Ireland had to do. And now everything is fine.” Ireland was a success story when it was partying wildly and it is a success story when it is the Grim Reaper of international economics. Binge or purge, we can do no wrong.
We Irish are eternal optimists, but Mr Schäuble’s belief that everything is fine is a rare example of a German outdoing us in irrational exuberance. It is certainly true that, if you were to walk around the rebuilt Dublin docklands, with their shiny European headquarter offices for Google, Twitter, Facebook and Yahoo, and their slick cafes and hotels, you might conclude that if this is what an Irish crisis looks like, an Irish boom must be quite something to behold.
The supercool new Marker Hotel and apartment complex, which opened its doors in April and cost €120 million ($163 million), could be in Los Angeles or Dubai. It looks down on the buoyant American architecture of Martha Schwartz’s Grand Canal Square and a plush Daniel Libeskind theater. In a country wrecked by a spectacular property bubble, house prices in Dublin have begun to soar again, rising 13 percent in the last year.
But Ireland has two economies: a global one dominated by American high-tech companies, and a domestic one in which most Irish workers have to make their living. The first is indeed booming. Not least because of those low corporate taxes, large global corporations find Dublin convivial for reasons other than its pubs and night life. The sheer scale of Ireland’s dependence on this kind of investment for its exports can be judged by the fact that Irish gross domestic product took a serious hit in 2013 when Viagra (which is made by Pfizer in County Cork) went off patent in Europe. Broadly speaking, however, the global side of the Irish economy has remained robust.
But home is where the heartache is: in the domestic economy outside the gated community of high-tech multinationals. Outside Dublin, property prices are still falling. Wages for most workers have dropped sharply. Unemployment remains very high at 12.8 per cent - and that figure would be higher if not for emigration. There’s always been a simple way to measure how well Ireland is doing: Go to the ports and airports after the Christmas vacation and count the young people waving goodbye to their parents as they head off to the United States, Canada, Australia or Britain, where they have gone to find work and opportunity.
Other people protest in bad times; the Irish leave. And they’ve been doing so in numbers that haven’t been recorded since the 1980s. Nearly 90,000 people emigrated between April 2012 and April 2013 and close to 400,000 have left since the 2008 crisis. For a country with a population about the size of Kentucky’s (about 4.5 million), that’s a lot of people.
There’s no great mystery about why they’re going: They don’t believe in the success story. A major study by University College Cork found that most of the emigrants are graduates and that almost half of them left full-time jobs in Ireland to go abroad. These are not desperate refugees; they’re bright young people who have lost faith in the idea that Ireland can give them the opportunities they want. They just don’t buy into the narrative of a triumphant rebound.
When the International Monetary Fund, the European Commission and the European Central Bank - the so-called troika - took over Ireland’s fiscal governance in December 2010, they somehow convinced themselves that sharp cuts in public spending and reductions in wages would go hand in hand with economic growth. The IMF, for example, told us that the Irish economy would grow by 5.25 percent between 2011 and 2013. In fact, it grew at around half that rate.
Common sense would have suggested that in an economy in which private investment had dried up (Irish investment rates are now about half the average for the euro zone), there might be a problem with slashing public investment as well. After five years of austerity, it is shocking but hardly surprising that one in four Irish children are growing up in households in which no one at all is in paid employment.
Nor is it surprising that the departure of the troika at the end of 2013 and some modest signs of economic recovery have not been greeted by Riverdancing on the rooftops. Irish people were prepared to take some punishment; there’s enough Catholic guilt still around for a story of sin and atonement to have considerable psychological purchase. People do look back ruefully on the Celtic Tiger years and admit that we deserved a whipping for thinking we could get rich by selling one another million-dollar houses. But they are not convinced that the cruel scale of the punishment was necessary or that the nasty medicine has, in fact, worked.
Behind both of these propositions looms the great contradiction in the supposed success story of Irish austerity. It was austerity only for citizens.
Running parallel to all the cuts in public spending and all the calls for fiscal responsibility has been a program of spending so lavish that it makes a drunken sailor look stingy. One part of the troika program was to cut wages, welfare, health care and education. The other was to insist that Ireland continue to put vast resources into its teetering banks, including the notorious, now liquidated, Anglo Irish Bank.
The policy of No Bondholder Left Behind, on which the European Central Bank insisted, has been staggeringly expensive. To put it in perspective, the European Union has just agreed to create a fund of $75 billion to deal with all future banking crises in its member states. Tiny Ireland has spent $85 billion bailing out its own banks.
Particularly galling to most Irish people is that there is now an almost casual admission that this was a pretty crazy idea. Olli Rehn, the European Union’s economic affairs commissioner and one of the chief architects of Irish strategy since the crash, now says, “In retrospect, I think it is quite easy to spot some mistakes like the blanket guarantee for banks.” This admission, though, does not imply any change of policy. “But that is now water under the bridge,” he went on to say, “and now we have redirected the river.” Ireland, Mr Rehn reassured us, is in “a better place for the moment.”
But the river has not been redirected: A torrent of debt continues to flow from the catastrophic decision to save bad banks at all costs. Hopes that Ireland’s debts might be alleviated by its European partners in recognition of the country’s role in saving the euro are now fading.
Little Ireland took one for the team. In return, it gets a pat on the head and the dubious pleasure of being called a success story.
This is why, in the end, the austerity program has not succeeded even in its basic aim of bringing down Ireland’s sovereign debt, which actually rose sharply over the last five years. In 2009, it was 64 per cent of GDP. Last year, it peaked at 125 per cent. The debt has doubled while public spending has been slashed.
In this, Ireland may be a model indeed: suffering to maintain an unreal image of slimmed-down perfection.
Fintan O’Toole, a columnist for The Irish Times, is a visiting lecturer at Princeton.