Opinion - George M. Mangion | Wednesday, 18 June 2008

Eire - don’t cry for me

It was a sunny in Dublin last Thursday, when I finally had my luggage delivered 24 hours late by Air Malta. The mishap happened en route from Heathrow to Dublin as all our baggage (including conference material ) were mistakenly send to Italy instead. Not much joy when we are preparing to launch an international Captives conference. As can be expected there was no attendant in Air Malta offices in Dublin and the British Midland flight ‘lost bags’ office swiftly informed us that we need not worry since delivery will be within two hours on the flight that followed. As this proved elusive, we asked for compensation. At Dublin airport we were informed not to expect any refund for personal effects beyond €60 per passenger per day unless we submit receipts. A day after and numerous phone calls (at the expensive rate) we were regaled by the delivery of our five pieces of luggage just before the opening of the conference. Is it a consolation that our worries and tribulations pale in significance to the historical moments faced by the Irish voters at the Lisbon referendum .We talked to a number of hotel employees and some restaurant serving staff to gauge the randomness of the no vote. Indeed all the no voters were rather strong in their opinion that the Lisbon treaty is too complex for them to grapple with. A taxi driver replied gleefully that he voted no as he did not want his son to be conscripted in the EU army. An elderly lady at an Italian restaurant also voted no since her brother, a fisherman, was not allowed to trawl or catch certain fish while non EU trawlers run amok unhindered in Irish waters. Another diner who also voted no wanted to protect Ireland’s neutrality. Most blamed the Treaty for rising food and fuel prices. An elderly banker was skeptical of the EU’s hidden agenda to harmonise taxes and jettison the current low rate in Ireland. Definitely, the confusion on the real meaning of the treaty was palpable. Next day on Irish TV the political spokesperson of the opposition party was jubilant and solemnly declared the treaty dead and buried. The David dressed in green colour of the Shamrock has gracefully knocked down the goliath of 500 million. So what went so wrong? Has democracy triumphed or was it all a cock–up of misinformed voters. In simple terms and cutting through the legalese the Lisbon Treaty is designed to streamline decision-making in Brussels and introduce a permanent “EU President” post and a foreign policy supremo with a real foreign service. There was no mention of conscription. Certainly the recently installed prime minister Brian Cowen had a lot of explaining to do at this week Summit in Brussels. Initially he stated that there is no scope of a repeat referendum as was the case with the Nice treaty. Last Monday saw ministers meeting in Luxembourg in a desperate attempt to pick up the pieces.
France led nations arguing that the Eire member had damaged its cause, with some fearing the bloc’s image would suffer a further blow if this week’s summit failed to resolve the issue. So is the treaty dead and buried or is there some hope that a legal solution is found that will respect the will of 26 partners who are expected to ratify it? Almost all, except the wavering Czechs, say ratification should continue. But it is not unproblematic to adjourn the will of the Irish vote. The Irish member of the European Commission, Charlie McCreevy, said on the sidelines of a Dublin business conference: “There can be no question of the Irish government being bullied into anything.” Again there will be compromises and discussions on the impasse. The EU is well known to reach eleventh hour solutions but this one needs more time and patience. Some hope that should all 26 countries ratify the treaty by December, the Irish can be persuaded to try again in exchange for assurances on retaining national vetoes over tax legislation indefinitely. Are the Irish biting the hand that has fed them and nourished their economy? It is hard to say who got the message wrong. It is beyond doubt that the Celtic tiger owed its success to its clever use of EU funds and a deep restructuring of its economy? The period of rapid economic growth began in the 1990s and slowed in 2001, only to pick up pace again in 2003 and then have slowed down once again by 2007. During this time, Ireland experienced a boom in which it was transformed from one of Europe’s poorer countries into one of its wealthiest. The causes of Ireland’s growth are the subject of some debate, but credit has been primary given to free market capitalism: low corporate taxation; decades of investment in domestic higher education; a policy of restraint in government spending; and EU membership - which provided transfer payments and export access to the Single Market.
Statistics show how in less than a decade, from 1994 to 2000 the GNP rate growth ranged between 6 and 11 per cent, falling through 2001 and early 2002 to 2 per cent, the level at which the economy had been growing in the early 1990s. The rate subsequently rose back to an average of about 5 per cent. During this period Irish living standards rose dramatically to equal then eventually surpass that of all but one state in Western Europe. Official records reveal that disposable income rose to record levels, enabling a huge rise in consumer spending. Naturally from a country who exported its workers to third countries it witnessed a drop in unemployment. A country famed for its trend of net emigration was swiftly reversed as the republic became a destination for returning immigrants. Unemployment fell gradually from 18 per cent in the late 1980s to 3.5 per cent by the end of the boom, and average industrial wages grew at one of the highest rates in Europe. With all this high speed movement, it was matched by a tight leash from the Central Bank over runaway inflation. This reached 5 per cent per annum towards the end of the ‘Tiger’ period, pushing Irish prices up to those of Nordic Europe.
Able politicians drafted a National Development Plan leading to massive improvements in road infrastructure while new transport services were developed. Yet clever corporate governance has resulted in a lower public debt, enabling public spending to double without any significant increase in taxes. As can be expected, the new wealth has also filtered in house prices, which shot up. More wealth also meant large investments in modernising Irish infrastructure and cities. Dublin attracted new arrivals of workers from other EU countries such as Poland and the Baltic states. The majority found well paid jobs in the retail and service sectors. A country previously famed for its potatoes and butter has seen many young people leaving the rural countryside to live and work in urban centres. The growing success of Ireland’s economy encouraged entrepreneurship and risk-taking, qualities that had been dormant during poor economic periods. So this bonanza cannot be the primary reason why a majority of 53 per cent plus has voted no to the treaty last Thursday? It is true that Ireland is suffering from the sins of its success. Growing wealth was blamed for rising crime levels among youths, particularly alcohol-related violence resulting from increased spending power. Will the bubble burst? Certainly there are some grey clouds looming ahead while property prices started to slide and some construction workers were laid idle. The advent of rising wages, inflation, limited infrastructure, exploding public spending, has blunted its competitive edge. Just consider lower products and services from ten new European Union members together with Romania and Bulgaria. These are threats to the continued competitiveness and sustained growth of the Irish economy. Irish wages are now substantially above the EU average, particularly in the Dublin region. These pressures primarily affect unskilled, semi-skilled, and manufacturing jobs but financial services will be hit later. One hopes that an honourable political solution is found not to isolate Eire at a time when its well earned bene essere is at stake.

George M. Mangion
The writer is a partner with PKFMALTA an audit and business advisory firm.
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