European Economic Community

Introduction

‘One of the wealthiest countries in the world at it Independence, Ireland was to suffer a relative decline for most of the twentieth century.' Living standards rose more slowly than in Europe and massive amount of the population was forced to emigrate in order to survive.' [Sweeney, P, p 7-8] The macroeconomic figures at the start of 1980s showed rising debt/GDP ratio and the exceptional current account balance of payments deficit. As a result, capital was leaking/disappearing away from the country and the foreign firms were not enthusiastic to locate here. High tax rates encouraged evasion and avoidance among Irish. [Leddin, A J and Walsh, B M, p 42] According to Allen (2000), ‘In the late 1980s Ireland had one of the highest rates of unemployment in the EU, increasing from 10% in 1981 to 17% in 1986. Debt payments on borrowing undertaken in the early 1980s constituted a huge burden'. However times for dramatic change were waiting just around the corner and soon the country was transformed into one of the wealthiest in the Europe. As [Leddin, A J and Walsh, B M, p 48] describes, ‘the period since 1986 has been unique in Irish history because never before did so many favourable factors combine and this combination made it possible to attract a steady inflow of high quality FDI. The inflow of new firms transformed the country's economic base and propelled exports, employment and productivity to heights that were undreamed of in earlier decades.' [Clinch, P, Convery, F and Walsh, B] say that ‘the boom was exceptional, not just by historical Irish standards but also in an international perspective. Apart from the Asian Tigers between 1960 and 1990, and China since 1978, no other countries have sustained such rapid growth for a comparable length of time.'

Economic Factors giving Rise to Initial Boom/ Causes for Celtic Tiger

As it was mentioned earlier, combination of many factor and unparalleled rise in the fortunes of the Irish economy allowed Celtic Tiger to be born. According to [Leddin, A J and Walsh, B M, p 42-47], some of the major reasons behind the dramatic success of the economy can be summarised as follows:

First of all, the financial stabilisation of the 1980s created more confidence in the economy for private investors' and as a result laid the foundations of the future expansion of Irish economy. EU assistance is another major factor leading to increase in Ireland's economic performance in the 1990s. According to Murphy (2000), ‘europeanisation has been a key element in transformation of the Irish economy. The trend towards Europeanisation begun in 1973 when Ireland joined the European Economic Community. The benefits to Ireland's ailing agricultural sector were obvious and the Common Agricultural Policy (CAP) provided farmers with guaranteed prices for many of their products.' Furthermore, Ireland was able to attract European Union structural and cohesion funds which ‘may have raised Ireland's GDP to a level of 4% above what it would otherwise have been'. Barry (1999) [Murphy, A E]) Another factor that largely contributed to the economic growth is the reintroduction of National Wage Agreements in late 1980s. The partnership structures established by governments created a forum for centralised wage bargaining that helped break the spiral of inflationary wage increases and ensured industrial peace.

http://ec.europa.eu/economy_finance/een/011/article_7086_en.htm The reduction of the rising tax burden on employees was also important. Ireland was one of the few EU countries where the share of taxes in GDP in late 1990s was significantly lower than ten years ago. For instance, in 1988 the standard rate of income tax was 35% and the higher rate 58%. By 1998 these rates had been lowered to 24% and 46%, respectively. The rates of social insurance tax on lower paid workers have also been reduced slightly. Because Ireland launched European Monetary System (EMS) in 1979 it enabled the country to avail of favourable exchange rate developments. Ireland was able to break the link with sterling just as that currency begun to be seriously overvalued. This allowed the country to maintain a competitive exchange rate. [Leddin, A J and Walsh, B M, p 42-47] Finally, the main explanation for the ‘Irish Miracle' lies with American multinational companies (MNCs) being attracted to the country. Well-educated English-speaking labour force at competitive wage rates and low corporate tax rate had acted as a magnet in attracting foreign firms in high technology fields to Ireland. Globalisation played another important role in attracting MNCs to Ireland. According to Murphy (2000), ‘the periphery disappears in the high-tech world once the region concerned has a good telecommunication facilities'. The creation of the Single European Market and the plan for the move to monetary union via the Maastrich Treaty in 1992 increased the urgency for MNCs to have a European base from which they could sell their commodities. [Murphy, A E]) Once the Country had stabilised its industrial relations, corrected its fiscal imbalances in the first half of the 1980s and implemented the Single European Act in the early 1990s, it was well positioned to attract Foreign Direct Investment (FDI) from the booming US economy and quickly catch up with the world's richest economies. [Clinch, P, Convery, F and Walsh, B] The decision in 1987 to establish an International Financial Services Centre in Dublin attracted major outside investment in such areas as banking, asset financing, fund management, and specialised insurance operations - and also boosted service exports.

http://ec.europa.eu/economy_finance/een/011/article_7086_en.htm In fact, because foreign investment coming from US, Japan, Germany, etc provided huge amounts of jobs and taxes for the Irish economy, opinion exists that it was FDI who/what actually created the Celtic Tiger.

The Output for the Economy - First Phase of Celtic Tiger (1994- 2000)

National Income Figures: growth performance

The output for the economy was remarkable. The direct results of Celtic Tiger were very low unemployment levels and increase in employment over the period, budget surpluses, fall in debt, immigration back to Ireland, and increase in population and so on. During the first phase of ‘Celtic Tiger' Irish income per head reached and eventually exceeded EU-15 levels. http://ec.europa.eu/economy_finance/een/011/article_7086_en.htm Rapid growth of GDP per person moved Ireland up the EU living- standards league table. [Clinch, P, Convery, F and Having long endured a standard of living that was only two-thirds of the EU average, between 1993 and 2001 Irish annual real growth has risen to more than double the average recorded over the previous three decades- 8% compared with 3.5%. Although the use of GDP is a limited measure of the “true” performance of the Irish economy, there is no doubt that throughout 1990s Ireland significantly outperformed all other EU countries.'[Clinch, P,Walsh, B] Irish economic performance during Celtic Tiger was even better that in Nederlands during ‘Dutch Miracle'. The Nederlands has been ‘a challenger for the best economic performer in Europe'. However, Holland's growth rate was well behind Ireland's at 2.5% a year between 1987 and 1994, or 4% in 1996 compared to Ireland's growth of over 7% in that year. [Sweeney, P

As seen from the table bellow, between 1990 and 1999 Ireland well outperformed such strong economies as Japan, United States, United Kingdom, Germany, Hong Kong, etc being second in the list after Singapore in the average GDP growth. 1 Economy - Government debt

http://www.cso.ie/releasespublications/documents/other_releases/2003/progress/indicatorsreportpart2.pdf

As a result of reorganisation of the state's industrial development agencies in 1994, substantial and sustained improvement in the growth performance of Irish indigenous industry has been noticed. [O'Malley, E (1998) The Revival of Irish Indigenous Industry 1987-1997, Quarterly Economic Commentary, , ESRI, April, pp 35-62]argues that ‘the improvement was more than a response to stronger domestic demand conditions and indicates a genuine improvement in competitive performance'. The value of the output of indigenous manufacturing plants increased by 9.6% in 1995, by 4.3% in 1996 and by 4.7% in 1997, compared to increase by 2.7% in 1994. Full time employment in this sector also reversed its previous decline and grew from 109414 people in 1993 to 124401 people in 1999. Indigenous exports were, however, more erratic, with their value growing by 2.3% in 1994, by 12.1% in1995, falling by 1.4% in 1996 and growing again by 5.8% in 1997. (O'Sullivan, M, 2000 Industrial Development: a New Beginning? , The Economy of Ireland: Policy and Performance of a European Region, Dublin, Gill and Macmillian)

It is also important to mention that between1994 and 1998 the US direct investment in Ireland averaged around 2.75% of GDP. Krugman (1998:43) points out that US foreign direct investment in Ireland was 50% higher per capita than in the UK and six times as high as in France or Germany. In 1997 Ireland “ranked fifth in the world as a destination for US direct investment outflows”. [Murphy, A E] Indeed the new FDI attracted to the country during 1990s has made an enormous contribution to the economy in terms of employment, export growth and tax revenue. But the other side of that coin has been the growing dependency on a relatively narrow production base. It is estimated that between 1990 and 1999 GDP increased by 75%, but the three sectors dominated by multinational corporations (MNCs)- chemicals, computers and instrument engineering, and electrical engineering- grew by 275% and contributed some 30 points of the 75 percentage points increase in domestic production. This growth pattern has clearly increased the economy's exposure to the performance of the US economy and to cyclical conditions in these three sectors. [Clinch, P, Convery, F and Walsh, B] [CHANGE WORDS!!!!!!]

Exports/Imports, BOT/BOP

Huge inflow of FDI during the period of Celtic Tiger, especially from the United States, caused Ireland to transform into an ‘export-oriented economy with a thriving manufacturing sector and a growing service sector'. The high growth in export values throughout the second half of the 1990s detailed in the table below. The table shows Irish export growth to be well above that of the EU and the OECD and comparable to that of other strong export-oriented NICs such as Mexico and South Korea. Between 1990 and 1999 the value of Irish exports grew from IR£14.3 billion to IR£52.2 billion while the trade balance grew from IR£1.8 billion to IR£17.8 billion over the same period. (Central Statistics Office, 2001) [Kirby, P, p31]

By the end of the decade, the largest increases in exports were accounted for by organic chemicals, computer equipment and electrical machinery, all sectors dominated by US multinationals. Strong International demand and weak euro helped ensure that Ireland's exports to the United States grew by 37% in the 11 months from January to November 2000 (CSO, 2001). This once again indicates Ireland's growing dependence on the US, both as a source of foreign investment and as an export market. [Kirby, P, p 32]

The chart below shows the increased importance of construction and services, and the diminishing significance of agriculture and industry in the years of 1999, 2000 and 2007. http://ec.europa.eu/economy_finance/een/011/article_7086_en.htm

Although Ireland at that time was significantly behind the EU leaders, Sweden and Finland in of innovation and technology indicators such as investment in research and technology and new patent applications, http://www.meas.ie/page.php?intPageID=168 Ireland's services exports continued to grow rapidly, accounting for one-third of total exports, with exports of goods and services worth about 80% of the country's GDP. http://ec.europa.eu/economy_finance/een/011/article_7086_en.htm

Overall Employment/Unemployment/Emigration/Immigration (in major sectors)

Furthermore, the employment rate in Ireland has been extremely remarkable. The numbers at work have risen from 54% in 1995 to 65.5% in 2004 which was higher than the EU 25 average of 63% in 2004.

http://www.meas.ie/page.php?intPageID=168 In contrast, over this period there was little net employment growth in the EU and the employment in the US increased by only about 1% a year. [Clinch, P, Convery, F and Walsh, B] In 1996, foreign firms accounted for 47% of the workforce employed in manufacturing and internationally traded services - such as information and communications technologies (ICT), chemicals, pharmaceuticals, medical technologies and engineering.

http://ec.europa.eu/economy_finance/een/011/article_7086_en.htm The unemployment rate fell from a peak of 17% in the 1980s to under 4% in 2001. This is all the more remarkable as between 1997 and 2000 the labour force itself grew at an annual average rate of 4.3% compared to annual average growth of 2.2% between 1990 and 1997. As a result, Ireland's labour force had grown to a historic high of 1.76 million in 2000. The following table places Ireland's employment growth in comparative perspective and shows that, since 1997, it has outshone its rivals. [Kirby, P, p32]

Women's labour-force participation rate also rose from its low initial level to close to the EU average. The high net emigration rate of the 1980s was replaced by the highest net immigration rate in the EU. For the first time in modern history Ireland has witnessed the growth of communities of residents who had no previous links with the country. [Clinch, P, Convery, F and Walsh, B]

Inflation

Inflation rate decreased to 2.1% in 1998. In 1999 Ireland had most low inflation rate that of 1.6% in its economic history. To contrast, in Spain in 1993, for the first time since1980 inflation rates appeared to be below %5. In France average inflation rate between 1990-2003 was 1.6%, while in Italy- 3.3% in 1990-2003. http://ekoab.ieu.edu.tr/eng/wp-content/rates.pdf

Second Phase of Celtic Tiger (2000- 2006)

After years of huge economic growth, in 2000 Irish economy suffered slight reverse. The economy had experienced ‘reduced growth and a sharp increase in the rate of inflation as the result of outbreak of foot-and-mouth disease'. This adversely affected the agriculture and tourism industries and the world-wide economic slowdown reduced levels of foreign investment. Moreover, in 2001 the US economic boom turned to recession, following the events of 11 September. This had influenced Ireland. [Clinch, Convery, Walsh] The 2001 recorded first rise in unemployment during the preceding five years and GDP growth was 5.2 per cent for 2003 compared with 11.5% in 2000. http://www.indexmundi.com/ireland/gdp_real_growth_rate.html In the late 2002 the Government announced a number of budgetary reductions in public expenditure totalling some £900 million and the Government was running a budget deficit 2003 for the first time since 1996, for which the Minister of Finance blamed the continued weakness of the international economy.' [International Organisations, The Europa World Year Book, 2003, 44th ed, Vol 1, p2162, Europa Publucations]

National Income Figures: growth performance

In 2002, the GNI figure for Ireland was only 80.9 per cent of the GDP figure indicating the increasing importance of the output of foreign direct investment enterprises, especially in the chemicals and pharmaceuticals sector. This compares with a figure of 91.6 per cent in 1993. The situation in Ireland is exceptional among EU countries, with Luxembourg the only other country having a wide gap between GDP and GNI. http://www.cso.ie/releasespublications/documents/other_releases/2003/progress/indicatorsreportpart2.pdf

vernment debt

However, the debt/GDP ratio in 2002 was low in comparison with other EU countries. It was well above half of the EU average (see Table below). Also, the Irish Central Bank says that following Nederlands, Ireland was second highest in the proportion of household borrowing in June 2006 in EU. It had rate of 80.2%. Howeverm the Bank says that ‘while both these countries have high personal debt to income ratios, they also have the highest proportion of household debt secured on housing. Both countries are well above the euro-area ratio of 70.3 per cent'.

http://www.finfacts.com/celtictigereconomyireland.htm In an extensive research report,Bank of Ireland Private Banking shows that, in a survey of the top 8 leading OECD nations, Ireland is ranked the second wealthiest, behind Japan and ahead of the UK, US, Italy, France, Germany and Canada, showing an average wealth per head of nearly 150,000.

http://www.finfacts.com/celtictigereconomyireland.htm As a result of increased standard of living live expectancy of the population has increased. For instance, in the period 2001-2003 Life expectancy at birth was 80.3 years for Irish women and 75.1 years for Irish men. Life expectancy for men in Ireland was slightly above the EU 25 average of 74.8 years but that for women was 0.8 years below the corresponding EU 25 figure of 81.1 years. Furthermore, the proportion of persons aged 25-34 in Ireland with 3rd level education rose from 27.1% in 1999 to 39.4% in 2004. The corresponding EU 25 rate in 2004 was 24.8%. http://www.meas.ie/page.php?intPageID=168

Economy - International transactions

AAt the same time FDI into Ireland represented 20 per cent of GDP in 2002. Apart from Luxembourg, this rate of investment was considerably higher than in any of the other EU countries (see Table below). Outward investment by companies resident in Ireland into their foreign subsidiaries and associates was one-eighth of the level of inward investment. http://www.cso.ie/releasespublications/documents/other_releases/2003/progress/indicatorsreportpart2.pdf In 2003 Ireland remains one of the most successful EU states at attracting foreign investment, with direct inward investment flows representing 17% of GDP in that year. This was ten times the corresponding Eurozone rate of 1.7% of GDP. http://www.meas.ie/page.php?intPageID=168

Furthermore, according to http://www.finfacts.com/celtictigereconomyireland.htm, since 2001, public service salaries have increased by 38%. The comparable rise in the average industrial wage was 19%. Salaries of members of the Oireachtas have risen by 100% since 1997. Property has made some Irish people very wealthy and Bank of Ireland Private Banking says that the Irish invested 30 billion (equity and borrowings) in local and overseas commercial property in the period 2001-2005. Ireland has overtaken the United States as the single largest cross-border investor into UK commercial property, accounting for almost 22% of total overseas purchases in 2005.

Overall Employment/Unemployment/Emigration/Immigration (in major sectors)

The unemployment rate in Ireland increased from a low point of 3.6% in 2001 to 4.4% in 2004. However, Ireland still had the second lowest unemployment rate in the EU in 2004 at less than half of the EU 25 average http://www.meas.ie/page.php?intPageID=168 In 2000 employment in Ireland was 65.2%. This figure has increased to 68.6% in 2006. While in US employment has decreased from 74.1% in 2000 to 72% in 2006. United Kindom's fugure was almost stable moving only from 71.2% to 71.6% during the same period of time. Japan also didn't show major change in its employment rates, counting only for 68.9% in 2000 and 70% in 2006.

http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&language=en&pcode=tsiem010&tableSelection=1&footnotes=yes&labeling=labels&plugin=1 The impact of the construction sector is evident in every other sector of the economy. Property related taxes and levies may amount to 9 billion this year - almost 19% of total Government spending in 2006. Approximately 1 in 8 people (12.6%) are employed in Ireland, in work in construction. This compares with an EU average of less than 8%. New house building units increased by 23.6% in the seven months to July 2006 and the Central Bank announced that 80% of the 27.3% growth in Private Sector Credit in the year to June 2006, was property related. http://www.finfacts.com/celtictigereconomyireland.htm

Inflation

The inflation rate in Ireland in the period from 2000 to 2006 was increasing by 5.3%, 4%, 4.7%, 4%, 2.3%, 2.2%, and 2.7% in each year respectively. While, in France, for example, during the same years inflation was increasing by 1.8%, 1.8%, 1.9%, 2.2%, 2.3%, 1.9% and 1.9%. Japan had even negative inflation rates changing by -0.7% in 2000 and by -0.7%, -0.9%, -0.3%, 0%, -0.3%, 0.3% until 2006. American inflation rate has increased by 3.4% in 2000, by 2.8% in 2001, by 1.6% in 2002, by 2.3% in 2003, by 2.7% in 2004, by 3.4% in 2005 and by 3.2% in 2006.

http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&language=en&pcode=tsieb060&tableSelection=1&footnotes=yes&labeling=labels&plugin=1 High inflation rate since 2000 has deteriorated Ireland's international trade competitiveness. Inflation in Ireland, as measured by the HICP, has been consistently higher than the EU average since 1998. According to http://www.meas.ie/page.php?intPageID=168, Cumulative inflation in Ireland over the period 2000-2004 was as high as 16% compared to an EU 25 average of 9%. However, http://ekoab.ieu.edu.tr/eng/wp-content/rates.pdf argues that in the period of 2000 inflation rates of Ireland more than 1990's but this is paralyzed with world economy.

Exports/Imports, BOT/BOP

The public balance in Ireland was significantly in surplus during the late 1990s. However, over the period 2000-2003 the public balance decreased from a surplus of 4.4% of GDP to a small surplus of 0.1% of GDP. In 2003, four Eurozone member states exceeded the 3% of GDP deficit limit under the EMU Stability and Growth Pact. According to the table below, Ireland had a small current account deficit in its balance of international payments in each of the years 2001 and 2002. Most of the EU countries had current account surpluses in 2002 whereas almost all of the acceding countries had current account deficits http://www.meas.ie/page.php?intPageID=168

Downturn and Recession in Economy (2007- 2009)

Sweeney (1999) in his book concerning Celtic Tiger noticed/emphasised, ‘this is simply cannot last. There is true economic growth in Ireland, but there is also much pseudoprosperity',

It seems to be that periods of rapid credit growth are often followed by loosening lending standards. However, while theoretically there is a chance of a crisis increases during booms, statistics show that only 20% of boom periods have ended in a crisis. Bigger and longer-lasting booms, especially those that involve higher inflation are more likely to end up as a crisis. Booms that include fast rising asset prices and real-estate prices are also very possible to lead to the beginning of the crises. Dell'Ariccia, G, Igan, D and Laeven, L (2008) Why Did the Crisis Happen? [Online]. Available: http://74.125.77.132/search?q=cache:-YctiNe9BdwJ:www.voxeu.org/reports/subprime/section1.pdf+http://www.voxeu.org/reports/subprime/section1.pdf&hl=en&ct=clnk&cd=1&gl=ie [Accessed 12 January 2009]

Different opinions exist about what really caused the credit crisis to unfold. For example, Saunders R argues that the causes of the credit crisis are not in dispute. He says that ‘the natural credit cycle was exacerbated by a wave of enthusiasm for leverage, which led to a dramatic under-pricing of risk.' Saunders, R (2008) Talking head: credit crunch lessons become clearer [Online]. Available: http://www.ft.com/cms/s/0/97c497e6-49fc-11dd-891a-000077b07658.html [Accessed 25 January 2009] However, one of the most prevalent causes of the current global credit crisis was the collapse of the U.S. subprime property market. This downturn led to many disastrous effects. According to the BBC, ‘The US sub-prime mortgage crisis has led to plunging property prices, a slowdown in the US economy, and billions in losses by banks. It stems from a fundamental change in the way mortgages are funded.' BBC News (2008) The downturn in facts and figures [Online]. Available: http://news.bbc.co.uk/2/hi/business/7073131.stm [Accessed 25 January 2009]

Another cause of the crisis lies with creation of Collateralised Debt Obligations (CDO's). These CDO's are described as ‘sophisticated financial tools that repackage individual loans into a product that can be sold on the secondary market'. Amadeo, K (2008) CDO's (Collateralized Debt Obligations) [Online]. Available: http://useconomy.about.com/od/glossary/g/CDOs.htm [Accessed 27 January 2009] They are created in order to alleviate banks of debt and to provide a greater amount of liquidity in the economy. The creation of these CDO's is highly unregulated, leading to great risk and uncertainty. They often rely on the trust of the bank selling the CDO without doing enough research to be sure the package is really worth the price'. Amadeo, K (2008) CDO's (Collateralized Debt Obligations) [Online]. Available: http://useconomy.about.com/od/glossary/g/CDOs.htm [Accessed 27 January 2009] As the crisis worsened, many investors began to pull large amounts of money out of the stock market, these actions fuelled by fear and a loss of confidence in banks. Banks perceived as troubled and unsteady saw the withdrawal of millions of dollars as people were fearful for their deposits. Furthermore, bankers became extremely hesitant in loaning money as they feared they would not be paid back. Despite a fall in the Libor, banks continued to hoard cash. According to Stevenson, K. R., ‘the entire global economy is at risk because the whole house of cards depends upon borrowed money'. Stevenson, K R (2008) The Credit Crisis Of 2008: Fear and Panic When The Banks Stop Lending Money [Online]. Available: http://www.nomoneylimitsblog.com/2008/10/10/the-credit-crisis-of-2008-fear-and-panic-when-the-banks-stop-lending-money/ [Accessed 25 January 2009] As well as banks, the credit crisis has had effects on other areas of countries' economies. In Ireland, many factors have led to a recession, such as a 10% decrease in investment in the construction industry, a decline of up to 50% in house prices and weakened consumer spending. The Irish Independent (2009) Property market decline to continue throughout 2009 [Online]. Available: http://www.independent.ie/business/personal-finance/property-mortgages/property-market-decline-to-continue-throughout-2009-1601110.html [Accessed 27 January 2009] Due to Ireland's dependency on American owned multinational companies many jobs have been lost and more are at risk as current U.S. president Barack Obama plans to pull many of these out of Ireland. In December 2008, the Irish unemployment rate rose to 7.5% which in turn lead to an increase in the amount of people signing on for benefits. The New Zealand Herald (2008) Ireland's unemployment highest in a decade, tax revenue down [Online]. Available: http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10546694 [Accessed 27 January 2009] Signs of the recession are all around us. Ten thousand people signed on the dole, in June 2008, taking the total unemployed to 220,000 - on average 650 people are losing their jobs every day. http://socialistworld.net/eng/2008/08/05irelaa.html

As seen in the table below, there have been even more noticeable decrease in total employment in 2009. As well as construction, agriculture, forestry, fishing and industry also suffered the highest decline. Although, the workable population of the country has been increasing since 2004 total unemployed had also been increasing steadily since 2004. Percentagewise, unemployment in Ireland has escalated from 7.7% in November last year to 12.8% in October of this year. For instance figure for Germany's unemployment during the same period of time has moved only from 7.1% to 7.5%, Japan from 4% to 5.1%, United Kindom from 6.3% to 7.8% and USA from 6.8% to 10.2% http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&language=en&pcode=teilm020&tableSelection=1&plugin=1

GDP per capita in Purchasing Power Standards in Ireland showed steady increase since 1998 (121.1%) until 2007 (149.6%), however in 2008 the declining trend appears with the figure of 136.6%. Most of other OECD countries, however, show more steady decline in GDO over the year and some even show slight increase. GDP of United Kindom in 2008, for instance, has been almost the same as in 1998 decreasing only by 0.4% over the period, but with the slight decreases and increases during the period. Japan's GDP showed disimprovement from 121% to 110.5% over the years. Similarly, US changed its GDP from 160.7% in 1998 to 154.5% in 2008. http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&plugin=1&language=en&pcode=tsieb010 According to Boyd (2008), the economy has gone into a dramatic decline. Long gone is talk of Ireland being one of the fastest growing economies in the world. Now all we seem to be getting from the government is that workers must accept a pay freeze and that there has to be at least 500 billion in cuts. Government minister Mary Harney stated that there will be even more cuts in health spending, http://socialistworld.net/eng/2008/08/05irelaa.html As the Irish economy and property market now appears to be at a crossroads and escalating oil prices and the resulting disorder in the global marketplace have created anxiety in the domestic market, the Euro has been trading at record levels to the dollar and sterling making Irish exports a less attractive proposition. http://0-www.emeraldinsight.com.ditlib.dit.ie/Insight/ViewContentServlet?contentType=NonArticle&Filename=Published/NonArticle/Articles/11226eaa.001.html Rising inflation is now another major problem, Boyd (2008) argues that ‘the price of oil may rise to $200 a barrel in the next six months - that's almost a 40% increase and will drive up the cost of everything we buy'. http://socialistworld.net/eng/2008/08/05irelaa.html

Furthermore, the economy is not expected to return to positive growth until 2011. Saul, J (2009) Irish Recession in '09 Seen to Be Worst on Record [Online]. Available: http://www.bnet.com/2407-13071_23-260479.html [Acccessed 31 January 2009] The head of EU finance ministers, Jean-Claude Juncker, has described the economic situation in Ireland as 'grave'. The Irish Central Bank forecast says ‘the country's economic growth will contract by almost 7% this year'. This seems to be much worse than it was predicted in January 2008 (the slowdown of 4.7%). The domestic demand is set to decline by 10% with about half of this decline due to the contraction in the housing market. In addition, it points out that ‘the exceptionally difficult global economic and financial conditions are making the Irish situation worse'. As a result fall in the standard of living in Ireland is not avoidable. http://www.rte.ie/news/2009/0403/economy.html (2009)

The main solution to the banking crisis that has been proposed so far is National Asset Management Agency or NAMA. According to the NAMA program taxpayers will pay 54 billion for loans valued on the bank books at 77 billion. There is the risks that NAMA will not achieve its ultimate objective: bringing about a resumption of normal lending by banks. But the risk to the economy of not acting to resolve the banking crisis is greater, argues Minister of Finance. http://www.irishtimes.com/newspaper/opinion/2009/0917/1224254721650.html

Conclusion

Ireland was one of the Europe's poorest countries for more than two centuries. Yet, during the 1990's as a result of colossal fortune and government policies Ireland achieved a remarkable rate of economic growth. Rapid escalation of GDP, low unemployment rates, high growth in export and over all hugely increased standard of living during the period of the Celtic Tiger- all turned the worse- than- average economy into ‘Irish Miracle'. In the case of Celtic Tiger most theories of economic growth can be dismissed as an explanation for the rapid growth of the economy.

However, following a period of economic boom, a financial bubble, global in its scale, has now burst and forced many people to face the dilemma about how the entire world economy could sink into a recession. Irish economy, mainly due to its close correlation with US economy and particularly dependence on MNCs had also suffered greatly. More challenging times certainly lie ahead for Ireland and for the Irish property market. For the first time in over a decade levels of unemployment are now on the rise and levels of consumer spending have contracted substantially. However, these trends are in line with those being experienced elsewhere in Europe and Ireland is certainly a radically different country from that prior to the 1990s: particularly insofar as historic levels of unemployment, public debt and infrastructural investment are concerned.

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