It’s the economy (stupid), but is there really no value in the Border..?

AFTER Gerry Adams offered the stunning insight to Barack Obama that jaw jaw is indeed better than war war, he sagely noted on Bloomberg that closer economic ties with the Republic of Ireland may see the island reunified within his lifetime. “You have an acceptance that partition no longer has any economic value,” said Adams. “It could be that the economy would be a big decider for many unionists.” Clearly the Sinn Fein leader believes that the exodus of Southern shoppers to the mecca malls of Derry or Newry is a short-term phenomenon, and has forgotten how the Border crossing supplied both the IRA in south Armagh and cheap petrol to NI in the past. On this side of the Border, both unionists and nationalists seem exceptionally happy that the retail traffic from the Republic is keeping them very profitable as the recession bites harder elsewhere. And since paying for NI in the long term seems to scare the bejaysus out of the politicians in the South, I find it hard to be convinced by Adams – even if there are some persuasive arguments for an all-Ireland economy, and that a Cruiser-style selfish interest may be the only thing that could ever entice Unionists into a united Ireland. But – if it’s swings and roundabouts, as Peter Robinson said, about whether to shop north of south of the border – is it a realistic prospect in Adams’ lifetime?

ADDS: Adams elaborates on his economic agenda here. As well as an all-Ireland economy, he wants “greater fiscal autonomy and the ability to gather taxes and manage our economy independent of British Treasury restraints”. While I agree in principle, I wonder if the current Stormont regime has the maturity to handle handle tax-varying powers, and calling for higher taxes (I can’t see them being varied downwards) during a recession won’t be popular. Adams also criticises how “the British Treasury also attempts to impose its own political and fiscal philosophy on how the government here does its business. For example, this approach dictates that the public sector can only become efficient if exposed to competition from the private sector, that assets should be sold off and public services privatised”.

  • Dave

    The ‘swings and roundabouts’ spiel is loaded to create the impression that those who are losing capital to foreign economies should be philosophical about the loss rather than proactive in seeking ways to minimise it. It’s somewhat self-serving to encourage such impotent philosophy among the losing side when you are on the winning side.

    In regard to Adams. He is a British patriot who is promoting the economic interests of the British state that he serves. Patriotism is all about promoting the interests of the state. To give propaganda cover to his British patriotism, he tries to mask it as Irish patriotism, i.e. he claims that bolstering the British economy of Northern Ireland and paying taxes to Her Majesty’s government in preference to the Irish government is a process that will promote a united Ireland rather than simply promote British economic interests.

  • Belfast Gonzo

    Perhaps you are right – after all, destroying the NI economy to destablise it used to be a primary motivation for mainstream republicanism. Now it seeks to build it, and even the Irish government has provided some assistance. But neither has the predicted republican dissident firebombing campaign happened this year – to the benefit of the nationalist workers and businesses on the Border AND the UK Treasury. Maybe the dissidents know what a negative PR campaign it would be during a recession – or maybe they’d have nothing to do during the day?

  • heck

    where are all the slugger complaints about smuggling in south armagh now that the traffic is the other way? Could it be that the complaints were not about the law but about fenians not paying the taxes to the british state,

  • frustrated democrat

    heck

    If anyone actually is smuggling from north to south they are not breaking UK laws. Most goods for personal consumption are in free circulation in any event.

  • Glencoppagagh

    Whenever you get Sinn Feign lured into a discussion of matters economic, you’re always going to end up hearing risible nonsense.

    Perhaps when you look at the background of the leadership, that’s not hard to understand. They’ve only ever had one economic policy which is more handouts please.

  • blinding

    Glencoppagagh said

    “They’ve only ever had one economic policy which is more handouts please”

    That is the most sincere form of flattery of Unionist economic policy.

    Oh how the treasury likes to see Northern Irelands politicians coming with those many empty saddle bags.
    I am sure they proclaim “Here come those great contributers from the Emerald Isle”

  • Glencoppagagh

    Blinding
    So SF favours fiscal self-sufficiency or subventions from Irish taxpayers instead?

  • Brian Walker

    I would say that the ongoing size public sector is a more important factor than the taxation and currency border. Public spending cuts in NI have yet to hit home seriously unlike the Republic. It will be intriguing to see the different course of the recession in each jurisdiction. Even when the public sector shrinks over the next 10 years the welfare state structure is likely to remain very attractive. However although they’ll be influential, I doubt if economic factors will ever be the decisive factors on unity.

  • Mack

    The economic case for Irish unity will grow, I don’t think the Shinners are the best placed to make that argument though.

    Some figures by way of comparision

    In 2005 the average weekly wage in the public sector in NI was
    £522 or £27144 per annum
    This is €29187 in Euro

    For private sector the figures are
    £402 or £2090
    This is €22477 in Euro

    http://www.theyworkforyou.com/wrans/?id=2006-01-10b.39793.h

    In Ireland (Republic) in 2005

    €844 per week or €43888 per year
    This is £40815 Sterling

    by 2007 this had risen to €921.16 per week or €47892 or £44539. This has since risen to over €48k per anum.

    http://www.cso.ie/statistics/public_sector_earnings.htm

    In 2005 the average industrial (manufacturing wage) for men was

    €609.91 per week or €31668 or £29451.

    The industrial sector is the worst paid in the Irish economuy.

    You browse the stats here

    http://www.cso.ie/statistics/indearnings.htm
    http://www.cso.ie/releasespublications/documents/earnings/current/earnlabcosts.pdf
    http://www.cso.ie/statistics/earnings_banking_ins_building_soc.htm

    In 2009 an Irish worker earning around €36,000 takes home € 30204.16 net of tax. It will cost the employer less in employer taxes to pay that wage.

    In 2009 a Northern Irish worker earning around €36,000 Euro (£33,480) takes home €26,782 (£24,908.80) net of tax. It will cost the employer more in employer taxes to pay that wage.

    http://www.taxcalc.eu/

    http://listentotaxman.com/index.php?c=1&yr=2008&age=0&add=0&code;=&pension=0&time=1&ingr=33480&vw;%5B%5D=yr&vw;%5B%5D=mth&vw;%5B%5D=wk

    If the Republic Of Ireland continues to grow faster on average than Northern Ireland (and I believe it will), this differential will continue to get bigger. With Northern Ireland’s low wages (competitve cost structure) and Ireland’s competitive tax structure we could construct a Celtic Tiger Mark II. Great, fulfilling, well paid, low tax, private sector jobs for you and your kids. Or you can keep working makey-uppey jobs in the British civil service.

    Now tell me, which do you prefer?

  • David

    Mack,

    We ain’t in 2005 no more.

    The Celtic Tiger’s dead,
    Someone it in the head.

  • Mack

    Also pensions are much higher in the south (in the event of Irish unity the British would have responsibility to pay pensions to those who worked for them, paid taxes to the state) but the Irish government would also have a moral responsibility to top them up (I think anyway)

    Irish pension €223.30 per week
    Northern Irish pension €97.52 (£90.70) per week

    Do it for your Granny…

  • Mack

    David
    True, the economy contracted about 5% this year and is on course to contract by similar amount next year. But note, those figures do not include construction were it was not uncommon for skilled workers to take home €100-€150k per anum. That has pretty much gone for good, and doesn’t skew the averages. The public sector wages are too high. They need to be brought back inline with productivity, but when the economy comes back – and it will eventually – productivity growth will balance things out and Irish wages can grow again with productivity growth. For a lot of reasons (better tax structure, education, fiscal automony, the IDA, Irish America, capital base, expertise & knowledge base, attractiveness for European immigration) Ireland (Republic) will grow faster than Northern Ireland in the UK.

    What I am suggesting is that NI could have it’s own Celtic Tiger Boom, by merging it’s strengths with ours in the south. But if you prefer a dependency economy with makey-up jobs, that’s your own decision..

    Links for above state benefits

    http://www.citizensinformation.ie/categories/social-welfare/social-welfare-payments/older-and-retired-people/oap_contributory

    http://www.thepensionservice.gov.uk/state-pension/basic/how-much-will-i-get.asp

  • David

    That should have read:

    “The celtic tiger’s dead,
    Someone shot it in the head.”

    Mack said:

    “What I am suggesting is that NI could have it’s own Celtic Tiger Boom, by merging it’s strengths with ours in the south. But if you prefer a dependency economy with makey-up jobs, that’s your own decision..”

    Merging NI with the south now will just lead to the same “dependency economy with makey-up jobs” in NI dragging down the much weakened southern economy. That looks like bad news for everyone.

  • Mack

    Merging NI with the south now will just lead to the same “dependency economy with makey-up jobs” in NI dragging down the much weakened southern economy. That looks like bad news for everyone.

    True, David, a sudden merger in this downturn would be a disaster. In the future there are other possibilities, and maybe it’s something of mutual benefit people would be willing to work towards.

    Not cultural conquest or domination, but leveraging the natural advantages on the island to mutual economic benefit (at the moment that is NI’s low cost base – perhaps also heavy engineering skills base, it would be really interesting to see what the IDA could achieve with that, and Ireland’s better tax structure etc).

    I think the expansion of the IFSC into Belfast shows the potential for this (presumably those companies will continue to pay taxes to the Irish exchequer).

  • Mack

    Brian Walker

    Even when the public sector shrinks over the next 10 years the welfare state structure is likely to remain very attractive

    Could you expand on this please? Do you mean in Ireland or the UK? As a Nordie living in the south the welfare state provisions in Ireland (Republic) seem far more generous to me.

  • whatever happened to Gerry Adams?

  • kensei

    Prices will equalise over the medium to long term. That is what happens. The devaluation of Sterling will not last forever, and even if it does, then in border towns wages will be forced lower, suppliers will be squeezed harder and we’ll wind up with something like purchasing power parity. You cannot build a long term policy on this. I will give Robinson that he at least recognises this.to trade — different currency, different regulations, different tax code will increase the cost of doing business on the other side of the border.

    Brian is right that the public sector is going to have to come down here. I’m not sure when that reality is going to bite in on our politicians.

  • Mack

    Kensei –
    The devaluation of Sterling will not last forever

    You may be right, but I’d be very surprised if it ever goes back to where it was. Another poster highlighted that in or around 1970 £1 was worth 12 DM it is work 2 Marks today.

    Retail is a small part of the economy and mostly sells foreign goods (import costs in the UK will rise now pushing prices up relative to Ireland – because of debt deflation this may mean they fall at a slower pace in the UK).

    Purchasing power is a function of productivity in the entire economy. If you accept that Ireland (Republic) is likely to experience stronger productivity growth in the medium/long term (thanks to better education, efficient tax structures, immigration) and that the Euro is a better managed currency than Sterling, then we’ll never have purchasing power parity between the two states. Southerners will always be able to buy more, whether that is in the north or the south.

  • Mack

    Kensei – Actually, I see what you mean (now) about purchasing power parity on retail prices (higher wages leaving higher prices in the south for convenience). I agree prices will find a natural balance again (at some point) and cross-border shopping fall off to more normal levels.

  • kensei

    Mack

    My first question would be — what did 12 DM buy you in 1970? I find it very hard to believe that the difference would be as dramtic as is suggested. Second, I think that speaks somewhat to the relative performance of the economies. The pound has been lower than this against the dollar, and bounced back and forth a bit.

    And if the South experiences better productivity growth and more stable currency relative to the North, then the economic argument will vastly favour unification, regardless if people from Dundalk are coming North to stock up on nappies.

  • Mack

    Kensei
    My first question would be—what did 12 DM buy you in 1970?

    £1 ? 🙂

    I think was Greenflag that mentioned that fact, so maybe he will elabourate. He has mentioned it in the context of the decline in British engineering – while the German’s kept their currency strong and increased their productivity by innovating, the British lowered the cost of their productivity by devaluing the pound. The result is the British engineering base is gone, the German’s are the world’s biggest exporters – excelling in complex engineering.

    And if the South experiences better productivity growth and more stable currency relative to the North, then the economic argument will vastly favour unification, regardless if people from Dundalk are coming North to stock up on nappies.

    It already does.

    I put up some stats showing the differences in earnings between the two states & differences in take home (after tax) in an earlier comment. The differences are substantial now.

    Nobody is really highlighting, yet, how better off Northerners could be, if they were part of the Irish rather than British economy.

  • Toby

    Mack,

    If you are going to quote earnings figures for 2005 then it would perhaps be better to use the exchange rate for that time of 1.4629 euro to the pound which shows the comparisons in a slightly different light. Also, the UK has minimum income guarantee for pensioners of £119.05 for single persons and £181.70 for couples (2007) whilst there are a range of other adjustments which makes it difficult to compare the position between RoI and NI.

    In terms of the overall economic argument this will be seen mainly in people voting with their feet. Whilst there appears to have been some movement south in terms of jobs, there does not seem to have been a mass exodus whilst the net movement in terms of public services would appear to be south-north.

    Brian,

    There are no cuts in public services, at least over the period to 2010-11. There are efficiency gains in terms of unit costs and the scaling back of low priority services, but these savings are being ploughed back into public services or middle class tax cuts such as the abolition of prescription charges.

  • Mack

    Toby

    Why? Do you think NI wages have caught up or fallen further behind? Public sector wages increased by over 10% and the average industrial wage by 10% in that period in Ireland. Do you think Sterling is going to recover that lost ground? The trend appears to be down.

    2005 was the last year I could find stats for Northern Ireland for. That is why I chose it. But we’re comparing Northern Ireland and Ireland today. The differential has gotten bigger.

  • Fraggle

    The devaluation of sterling and the influx of souther money can only push prices in the north higher in the short to medium term. How will northerners feel when the only ones able to afford the goods in northern shops are southerners? I know I’d hate to be earning a sterling salary right now, watching the value drip away and seeing the hordes of southern shoppers buying everything in sight because it seems so cheap to them.

  • Mack

    Toby – did you notice the significant differential in tax rates?

    Even with that exchange rate (which is a poor comparision) public sector wages were £4000 higher. The average industrial wage (does not include services such as IT or Banking for example) in the south was still 10% higher than the entire private sector average in the north. Before you take into account the superior personal tax rates in Ireland (Republic).

  • Toby

    Mack,

    Average earnings have grown by around 10% over the period 2005-2008 in Northern Ireland as well. In making the point about exchange rates I was highlighting that there are a range of factors behind the headline statistics which influence on the ground levels of purchsing power- for example price levels in the RoI tend to be above the euro average whilst prices in NI tend to be lower than the UK average. In addition, one must consider the overall tax burden (i.e. including indirect taxes such as VAT and charges for public services etc) rather simply the level of income tax.

    On this basis the economic argument for a united Ireland is less convincing, even before we come to the £5 billion shortfall between public expenditure in NI and the level of taxes raised.

    Fraggle,

    Most prices in the NI retail sector largely reflect UK wide pricing structures (whilst other factors such as the exemption from water charges mean that overall prices are lower) so that it is unlikely that increased demand from the RoI will have a significant impact on NI prices.

  • Toby

    Mack,

    I would suggest that the 2005 exchange rate is a more accurate figure for the longer term exchange rate position than the figure you have used.

    There are also differences in the methodology used in the respective estimates which also bias the comparisons. Also, it is not simply those in work that we should be concerned with but also those seeking work with the unemployment rate in NI currently lower than in the RoI, I think.

    However, my main point remains that if the disposal income differential was as great as you suggest then there would be very few people left in Northern Ireland as we would have all moved down south.

  • Mack

    Toby –
    even before we come to the £5 billion shortfall between public expenditure in NI and the level of taxes raised.

    The subvention is the problem that needs to be solved, and can be solved via increased Irish involved via such initiatives as the IFSC expansion.

    In addition, one must consider the overall tax burden (i.e. including indirect taxes such as VAT and charges for public services etc) rather simply the level of income tax.

    To quote

    “The tax burden in Ireland, as measured by Forbes Misery Index, is lower than most of the world.[2] It gets a score of 90.3, lower than that of France (174.8), Germany (117), the United Kingdom (111.3), and Canada (111.2) However it is beaten by South Africa (85), Taiwan (82.1) Singapore (79), Hong Kong (43.5) and the United Arab Emirates (18).”

    http://en.wikipedia.org/wiki/Taxation_in_the_Republic_of_Ireland

    You may or may not be aware, in Ireland

    Homeowners do no pay rates

    Mortgage interest is tax deductable

    Rent relief is available for renters

    There are no college fees

    Free public health is provided to those who can’t afford it. Those who can pay, pay a small amount towards it (or get health insurance , which costs a lot less than national insurance).

    Capital gains are taxed at 20%

    Ireland has a low dependency ratio – that it has more workers per dependent than the UK.
    It is less densely populated and therefore has more scope for promoting higher population growth than the UK. All of this should mean a lighter tax burden and better benefits for many generations.

    ——–
    Northern Ireland would be better of as part of the Irish economy, than as part of the British economy.

  • Mack

    Toby – As a Northerner who moved south, I earn and keep a lot more than any of my northern family or friends (as does almost everyone I know down here). The effect is real. My sister saw an advert for the same job she does in the north across the border and she ignored it because she thought the salary listed was a typo (it was that much higher than her current salary)!

    Substantial numbers of notherners along the border work in the south (and yes even commute to Dublin – from as far away as Lurgan and Lisburn I’ve heard).

    You may find a little research on salaries enlightening (and once the economy picks up – perhaps rewarding!!)

  • Mack

    Toby – I would suggest that the 2005 exchange rate is a more accurate figure for the longer term exchange rate position than the figure you have used.

    I don’t think so, Sterling is in a long term relative decline (against the DM and now the Euro – it’s not a comparision against the old Punt). Once rates hit zero the Quantitive Easing starts (printing press starts rolling) and it’s all over bar the shouting for Sterling.

  • Glencoppagagh

    Mack
    “by 2007 this had risen to €921.16 per week or €47892 or £44539. This has since risen to over €48k per anum”
    This figure is truly appalling and it’s little wonder that people are calling for the imposition of pay cuts in the public sector.
    Such a differential should only apply in a rip-roaring free market economy where the public sector is a tiny elite. That’s not the case in Ireland.
    If an Irish government has the political courage to significantly cut public sector pay, it would be a very positive signal in favour of unity for me.
    However, I’m sure it would horrify SF and their state-dependent consituency in NI.

  • Toby

    Mack,

    Reducing complex tax systems to a single index does not necessarily provide a reliable indicator.

    Whilst you have your own personal experience, I know of many people from the RoI who have moved to NI. There is also a telling reference to people commuting to Dublin from Lurgan and Lisburn- is this perhaps due to the fact that although they worked in Dublin, they could not afford to live there whilst a commute of that distance must make for a great quality of life.

    There is not a hope in hell of the IFSC resulting in the subvention being reduced to anything close to a manageable level.

    Whilst things may be different in the longer term there is no guarantee that earnings will rise in NI to RoI levels in the short to medium terms if there was to be a united Ireland. The most likely outcome is that the earnings differential will rise as the relatively higher paid NI public sector workers(c40% of total employee jobs) break the link with UK wide wage agreements.

  • Shane

    “makey-uppey jobs in the British civil service. ”

    And shops charging GB prices because of the transport subsidy to “loyal” northerners which is not available to the same shops in the Republic.

  • Toby

    Mack,

    The Euro is not the DM. In terms of a decline in sterling, the pound has been relatively stable over the past 5 years at around 1.44-1.47 Euro to the pound- highlighting why this is the more appropriate rate to use.

  • Mack

    Glencoppagh – Agree 100%.

  • Mack

    Toby – The property bubble has burst and is largely responsible for this years contraction – Dublin housing is still overvalued but is coming down. Nordie commuters are based up north – not Dubs who bought cheap houses in the north.

    By every indicator – the tax burden in RoI is among the lowest in the world – lower than the UK. I’m sure there is a degree of cognitive dissonance going on here – but do your own research. The 20 year Celtic Tiger boom happened and much of it was real (much of it was property bluster – but there you go). You would need to be in serious denial not to see higher wages and lower taxes in RoI…

  • Mackin It Up

    So the Republic is a financial Utopia? I can just imagine the scales falling from the eyes of unionists and them waving bye bye to the UK to revel in a land awash with cash.

    If only this insight had been shared with the provos. They could have, á la Robin Hood, robbed banks in the south and planted cash filled cars in northern towns and villages instead of bombs.

    Particularly intransigent unionists could have been specifically targetted with cash-letters that would engulf the opener in wads of lolly.

    BTW what is the present exchange rate for a birthright?

  • kensei

    I think it would be highly dangerous to base the equilibrium exchange rate for Sterling-Euro based on the experience of the last decade. The Euro has only been around during a period of more or less unprecedented growth in the UK economy. A comparison with the dollar would perhaps yield some clues — the pound has returned to its medium term average of the last 25 years at about $1.50. One pound = one euro looks much too low, but there is no guarantee that it will return to anything like 1.44-1.47 Euro even within the medium term.

    I think we need to remember that the South is going to take a severe battering in the next year or so and there will be some serious increases in taxes. As a much smaller economy, the Republic has fundamentally different strengths and weaknesses to the UK; there is an economic case for unity but it is at this point it is not overwhelming. It will become so if the Republic maintains an advantage over the North in the next 10-15 years.

    In terms of the subvention, the next funding round is likely to produce some quite serious cuts for the Assembly. Aside from the loss of the “peace dividend” funding, cuts in UK spending translate directly into cuts in Assembly budget. It’s going to be our politicians tasks with implementing some quite nasty cuts, I feel.

  • frustrated democrat

    The problem in the south was that it built the Tiger economy on 4 pillars.

    1. Property
    2. Low wages
    3. Low Taxes
    4. EU funds

    All 4 have now started to crumble

    1. I think I need not waste too much time on this as it is self evident – see Anglo Irish Bank.

    2. The figures here show how much that has changed, Bulgaria is less than €10,000.

    3. 12.5% is no longer the lowest in the EU others offer 10%.

    4. We know where all those have gone.

    Multinationals are starting to leave the financial sector is in free fall so where does the next Tiger from?

    The North already has lower wages and a very rich aunt, why would they settle for a cousin who has fallen on hard times. They need all the assistance they can get to dig themselves out a 65% public sector.

  • kensei

    fd

    I should also caution against proclaiming the DOOm, DOOOOOOOOOOOOOM, DOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOM of the Southern economy.

    EU funds were never a serious contributor to GDP growth; Ireland is English speaking, positioned excellently to act as a bridge between the US and the EU, has a well educated work force and has invested heavily infrastructure over the course of the boom. Companies have also invested heavily; there are costs to moving. I seriously doubt we’ll ever see Tiger levels of growth again, but rich counties tend to stay rich.

  • Dave

    “Whenever you get Sinn Feign lured into a discussion of matters economic, you’re always going to end up hearing risible nonsense.” – Glencoppagagh

    Are you implying that Gerry “The workers create the wealth” Adams isn’t the economic mastermind that his plan implies? Admittedly, he was laughed out of the Republic during the last general election for displaying a risible grasp of economics on the RTE party leaders’ debate, but perhaps we got him wrong. Perhaps economic ‘convergence’ between the two states will give the unionists an incentive to vote themselves out of their beloved UK and into hated Fenianland when there is no economic gain for doing so. Hmmm…. hold on, that’s still crazy. If the argument is that unionists would be economically richer in the Republic than they would be by remaining in the UK, then the argument is stronger when the differential is greater. So, in acting to reduce the differential by seeking convergence, Mr Adams is removing the incentive for unionists to vote themselves out of their beloved UK.

  • David

    Kensei wrote:

    “I think we need to remember that the South is going to take a severe battering in the next year or so and there will be some serious increases in taxes. As a much smaller economy, the Republic has fundamentally different strengths and weaknesses to the UK; there is an economic case for unity but it is at this point it is not overwhelming. It will become so if the Republic maintains an advantage over the North in the next 10-15 years.”

    While I think that your assessment of the southern economy is correct, I am not convinced that there can be ANY economic case for Irish unity while NI remains as a dependency economy. This seems to be the big flaw in most versions of the economic case for unity. There is some sort of assumption that Irish unity in itself will somehow end NI’s economic dependency. I would tend to look at German reunification and think that the economic fundamentals have to be sorted out in Northern Ireland first before Irish unity would be anything else than a millstone round the southern economy’s neck.

    Sorting out the NI economy would have the side effect of making workable all currently impractical non-unity options for NI’s constitutional future (eg autonomy within the UK, independence, condominium or whatever).

  • Glencoppagagh

    It will be interesting to see how the RoI emerges from this recession and whether it can resume the pace of growth that characterised the ‘Celtic Tiger’.
    I don’t think it can because some of the factors that propelled the rapid growth cannot be replicated. For a start, it no longer a European country with third-world population growth as it was as recently as the seventies. The reservoir of young and cheap but educated labour is not at such a high level so it is more dependent on favourable taxation to attract multinationals. Unfortunately that trick is easy to repeat elsewhere and the abuse of Ireland’s low tax rate by US companies has not escaped the attention of the IRS and US politicians.
    I have always been a bit sceptical that after 50 years of abject economic failure the Irish had suddenly become a nation of driven entrepreneurs and that view appears to have been broadly correct. Owning trophy properties around the world testifies to the fact that so little Irish capital was invested productively. Ryanair is the only internationally successful business to have emerged in Ireland over the last 25 years. If Ireland is to resume growth at anything like the rates experienced in the 1990s that will have to change. You can’t rely on FDI any more.
    Mack
    If you’re still there. I see the yield premium for Irish bonds vs German is now 147 basis points.

  • frustrated democrat

    Glencoppagagh

    The biggest problem is one that besets all sucessful economies their standard of living increases and they are not willing to see it reduce until it finally has to and unfortunately Ireland can no longer afford to continue spending what it does not have – the UK is only marginally better off in that it has a much better indigeneous business base than Ireland.

  • kensei

    David

    I think there is going to be some movement on the subvention in coming years, and it’s largely going to be our politicians that are going to have to sort it out. The current financial package is essentially as good as it gets. There are going to be cutbacks when the money runs out. Some of the harder decisions really should be taken now, even if implementation is delayed on account of the recession.

    Unity could be a catalyst for getting rid of the subvention; it depends on how big it is at the time, and the relative positions of the two economies. But you are right, it could be a blocking issue.

    Glen

    Celtic Tiger growth levels cannot be sustained for hugely extended periods. Over the long term, that would cause Ireland’s GDP per capita to become hugely out of whack with the rest of the planet. It is already ahead of most developed nations. If and when we come out of this, I’d expect to see more normal levels of growth. That may still execeed the North and UK in general.

    fd

    The Republic’s public finances were in fairly decent shape before the onset of this crisis, much better than the UK’s – see chart here: http://www.indexmundi.com/g/r.aspx?c=ei&v=143. The problem is less one of spending what you don’t have, but more one of discovering what you do have isn’t worth what you thought.

    The UK is in as much if not worse trouble than Ireland — the debt figures for the next few years are truly terrifying — and the UK had become very dependent on the financial services sector which has just took a pounding from which it is very unlikely to recover to peak levels, at least anytime soon.

    I’m not really buying the whole “indigenous base” thing. This matters only if the likes of Google and Microsoft are going to start pulling out wholesale, which is unlikely. And the UK receives huge amounts of FDI too.

  • frustrated democrat

    Ken

    ‘The problem is less one of spending what you don’t have, but more one of discovering what you do have isn’t worth what you thought’.

    Is this what you are saying ‘the assets the money was spent on are worth a fraction of what you thought they were’?

    Then in the current situation if the banks called in their loans they would all be bankrupt by massive margins. So the government is dependent on the assets increasing in value to meet liabilities otherways they will have to come up with unbelievable sums to meet their guarantees.

    In the UK total indebtedness (including PFI, banks, pensions, personal etc) is about 4 trillion pounds – see Peston BBC – or £133,000 for every employee in the UK.

    What is the equivalent number in Ireland? It would be interesting to compare.

  • Mack

    FD, Glencoppagh

    The income tax rises in the last budget were supposedly ‘temporary’ designated as a tax ‘levy’ rather than a tax rise. The figures for after tax income, include this ‘temporary’ rise.

    An Bord Snip (aka the public sector hatchet board) reports in January – there are big spending cuts coming.

    I suspect the pain will born with cuts rather than tax increases. Even so, Ireland would have a long way to go to catch up with the UK.

    FD – I disagree with your analysis of the Celtic Tiger growth I would say

    1. Enlightened, attractive tax rates – these have not and will not be debased.
    2. English speaking, in the EU
    3. Highly educated work force, quality universities
    4. Good business infrastructure for foreign multi-nationals (they got top tier trans-atlantic broadband connections while small business screamed)
    5. Ability to attract top talent from across Europe / The world (particularly in Google’s case).
    6. Very low national debt
    7. Very focused on attracting FDI in particular areas e.g. IT, Pharma, Finance (IFSC)
    8. Excellent people in the IDA, great connections in Irish America (America in general), commited government ministers who will go on a conference call (& change policy etc) to get business.

    All of the above are still in place. Low wages have gone, but is replaced by a top-quality, productive, high-skilled work force. You get what you pay for. Our workforce has two decades of delivering best in class products and services at this stage.

    The property tax break structure – to encourage building has been replaced with tax breaks for entreprenuers and a bigger slush fund to help fund projects – hopefully this will be as successful as the property breaks were.

  • Mack

    fd

    Multinationals are starting to leave the financial sector is in free fall so where does the next Tiger from?

    With the well telegraphed exception of Dell, who are selling all of their developed world production plants – what multinationals are leaving?

    If anything, in recent months there have been announcements of British firms locating here for tax purposes (& Facebook looking around for office space).

  • Mack

    Some interesting stats on debt. Personal debt per worker would come out at around €74k according CSO stats from 2007. Average wage per male €43k in 2007.

    http://www.irishtimes.com/newspaper/ireland/2008/1031/1225321588464.html

    Glencoppagh

    Ryanair is the only internationally successful business to have emerged in Ireland over the last 25 years

    Bull shit.
    Houghton Mifflin Harcourt are one of the biggest IT/ publishing houses in the world. Currently expanding in Dublin – 400 additional workers. It’s a privately owned firm, it was called Riverdeep but has since expanded massively since going private (buying out a large US publisher).
    Iona technologies – once one of the biggest middleware vendors in business (recently bought out)
    Smartforce / CBT Systems – largest E-learning firm, ran into problems now Skillsoft.
    Baltimore Technologies– admittedly now defunct.
    Fineos very succesful internationally (Australia, New Zealand)
    Curam software lot of business in the US
    Changing worlds also recently bought out

    There were tons of successful international business grown during that period – not all successful businesses are publicly traded. And those are just in IT – have you heard of Kerry Group ?

  • Mack

    New gov scheme, Ireland aims to be like Isreal in building indigenous business

    http://www.sbpost.ie/post/pages/p/wholestory.aspx-qqqt=DAVID MACWILLAMS-qqqs=commentandanalysis-qqqsectionid=3-qqqc=5.2.0.0-qqqn=1-qqqx=1.asp

  • David

    Mack, do you think that the credit crunch will have ANY bad effects on the Irish economy and if so what?

    You seem to believe that everything is just business as usual. Given things such as the bank recapitalisation I do not see how this can be the case.

  • Mack

    David – Of course.

    Ireland is going through a severe recession. The UK is going to go through a severe recession too. Recessions are a natural part of the capitalist business cycle – they do not mark the end of the world. Other countries have gone through recessions and come out stronger. We will do the same.

    It is still a matter of debate as to which country will whether the storm better – but in the long run that may not even be important.

    What matters if you are examining whether or not there are economic benefits of a United Ireland, is the relative performance of NI within the Union and RoI outside of it over the medium / long term.

    If Ireland out-performs Northern Ireland over the medium / long term – and I absolutely believe it will – then the differential between living standards north and south will grow. (We can see significant differences now in net take home pay).

    The recieved wisdom in Northern Ireland is that economic arguements favour the union, I think the Irish governments in recent decades have demonstrated that they can grow and manage a relatively small economy, better than such an economy would have performed had it be governed by Westminister (cf – Scotland, Wales, Northern Ireland, northern England).

    If Ireland continues to grow faster than Northern Ireland, in the future Northerners might like to ask themselves would our economy be better off, in the long run, within the Irish economic system or the British one? The good news is, if the answer is yes it’s a positive benefit for you for joining with us. You don’t have to, you still have a vote.

  • Mack

    Glencoppagh
    Mack
    If you’re still there. I see the yield premium for Irish bonds vs German is now 147 basis points.

    Yeah, true the government guarantee of the banks was risky move. I hope it will pay off, but there is always the chance it won’t (and then there’ll be no economic argument for unity for a long time), but we’ll see what happens.

    Celtic Tiger growth rates in Ireland (Republic) are gone for good – but even if growth is only slightly higher than in the north the effects overtime will be huge (exponential function).

    Some other companies that grew substantially (or started up) during that period

    CRH – one of the worlds biggest building supply firms
    AIB – seriously branched out into international banking
    Anglo Irish Bank – UK market
    O’Brien’s Sandwhiches
    Paddy Power
    Havoc Games
    Information Mosaic
    Version 1
    VISION

    Isreal we are not (yet anyway), but there was a good deal of entreprenuarialism during the boom.