Caging the Tiger: Ireland's Economy Roars On

By Thornton, Ryan | Harvard International Review, Fall 2004 | Go to article overview

Caging the Tiger: Ireland's Economy Roars On


Thornton, Ryan, Harvard International Review


The "Celtic Tiger" roared during the 1990s. The dot.com bubble, low taxation, and corporate-friendly legislation produced a boom economy in Ireland that lasted for a number of years. Recently, however, the growth has slowed, and the Celtic Tiger seems to have grown weary. While the economy continues to grow at a rate above the EU average, Ireland has not fiscally adjusted itself to the fact that the boom times are over.

The "Emerald Isle" still enjoys one of the strongest economies in Europe. In 2003, Ireland's real growth of gross domestic product (GDP) was 2.1 percent, triple the average of 0.7 percent. Although the economies of Germany and France are far larger, Ireland's real growth skyrocketed above theirs as well, at -0.1 percent and 0.1 percent, respectively. If Ireland is able to sustain this rate of growth counter to the trends in the global marketplace, it is likely that its economy has the capability to remain strong in the long term as well.

Unfortunately, not all the economic statistics are good. In the heyday of the Celtic Tiger, the Irish economy was flying along at the robust growth rate of 8 percent; this has now fallen by three-quarters. However, the real problem lies in the absence of any response by Ireland to the fact that times have changed. The EU Harmonised Indices of Consumer Prices show that Ireland has the second highest cost of living in the European Union. During the days of the Celtic Tiger, the response of employers to increases in the cost of living in Ireland was to increase employees' wages. This knee-jerk reaction was sustained for as long as the boom times rolled. In most of Europe and in the United States, this abruptly ended with the collapse of the dot.com bubble. In Ireland, the end to this one-upping has been very slow in coming.

The obvious result of this constant increase in both wages and costs is a higher rate of inflation. This problem is likely to become more acute with time since certain commodities, such as oil, are available to the Irish economy solely through importation. Since crude oil prices are projected to continue to increase, the cost of oil in Ireland can only be expected to follow suit and rise well above its current rate of $4. …

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