Ireland: From poor man, to tiger, to comeback kid

  • Considered the poor man of Western Europe for nearly all of the 20th century, Ireland in the 1990s turbocharged itself to become a hub for transatlantic business
  • The country of 4.6 million now hosts multinational tech giants from Apple and Facebook to LinkedIn and Airbnb
  • After recovering from severe recession post-2008, Ireland's challenges center on Brexit, its border with Northern Ireland, and a potential government collapse
Dublin, Ireland.
2c Image | Getty Images
Dublin, Ireland.

Few European countries have experienced the economic rollercoaster that Ireland has in such a short period of time.

Considered the poor man of Western Europe for nearly all of the 20th century, Ireland in the 1990s turbocharged itself to become a hub for transatlantic business and multinational investment, garnering the moniker "Celtic Tiger."

The country of 4.6 million is now home to every household name in tech you can think of, from Apple and Facebook to LinkedIn and Airbnb. U.S. multinationals alone number more than 700.

Ireland's government has leveraged its investment attractiveness — a friendly low-tax environment, robust tech expertise and an English-speaking EU member state — to chase further growth, though memories still linger of the tanking economic fortunes of just a decade ago.

A rollercoaster decade

The financial crisis of 2008 brought Ireland crashing down to earth with a severity far worse than its peers, thanks to a massive property bubble and slew of banking scandals that preceded it.

A controversial international bailout and strict austerity measures rescued Ireland and allowed it recover at remarkable rate — by 2014, its GDP growth rate had rebounded to 4.8 percent from a dire contraction between 2008-09.

While emigration out of Ireland remains an emotive topic for historical reasons, Derek Kehoe, head of BNP Paribas' Dublin office, said: "The ability of large sections of the labor force to move abroad in search of work was a massive safety valve for the government" during this time. "In addition, a pretty savage austerity program combining expenditure cuts with tax raises helped Ireland to rapidly regain competitiveness."

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Since the Great Famine of 1845 — when potato blight caused mass hunger and exodus from the island, leading its population to drop by 25 percent — emigration has shaped not only Ireland but the world, particularly the U.S. and U.K. The number of people claiming Irish ancestry worldwide numbers more than 80 million.

Ireland formally declared itself a republic in 1949 and joined the European Economic Community — the predecessor to the European Union — in 1973. It was this entry into the international marketplace that would transform the country's economic trajectory.

EU for life

"The establishment of the European single market and globalization played a huge part in Ireland's economic turnaround in the 1990s," Robert O'Daly, Ireland expert at the Economist Intelligence Unit, told CNBC. At the start of the decade, staggering unemployment plagued the country. The Guardian reported that in 1991, there were "fewer people at work… than in 1926," according to census figures.

"Access to the single market drove a surge in FDI (foreign direct investment) into Ireland, particularly by U.S. firms in the high value-added pharmachem and technology sectors," O'Daly said. Formerly an agricultural-based economy, Ireland's biggest growth sectors are now pharmaceuticals, tech, financial services and agri-tech.

Still, O'Daly notes: "Ireland was ahead of most other European countries in creating a policy environment that was attractive to such multinationals seeking access to the European single market. This included the development of a well-educated, flexible workforce and a highly favorable tax regime, including a low corporate tax rate of 12.5 percent."

In recent years, however, Ireland's tax regime for multinationals has come under intense scrutiny after it was accused of enabling tax avoidance.

Apple in 2016 was ordered to pay the country a record-breaking 13 billion euros ($15.5 billion) after a ruling by the European Commission found that a "sweetheart" tax deal between Apple and Ireland's tax authorities broke EU laws. Apple CEO Tim Cook shot back that this would harm future investment into Europe.

"The level of economic growth in recent years and the recovery has been impressive," O'Daly said. "Risks to the recovery, however, loom large, notably from Brexit and international pressure on Ireland to tighten up its tax regime for multinationals."

Brexit looms ahead

The populist, anti-EU overtones sweeping much of European politics haven't gained much traction in Ireland. A 2016 Eurobarometer poll revealed the Irish had the most positive view of the EU among all 28 member states at 77 percent, compared to an EU average of 50 percent.

Optimism is high for Ireland's Brexit opportunities, where many see opportunity for increased financial services and tech sector investment as some companies choose to move away from the U.K. Ireland has been successfully marketing its position as an English-speaking EU member state from which companies can access the 500 million-strong European single market.

However, the U.K. is crucial as an export market to Ireland's SME sector, noted Kehoe. "In addition, we have a shared border which has given us a complicated and difficult history with our nearest neighbors," he said, referencing the decades-long violent conflict, known as "The Troubles," that centered around the status of Northern Ireland, Irish unity and the country's Protestant-Catholic divide.

"Brexit presents an enormous political and cultural challenge for the U.K. and Ireland," Kehoe said. "We have shared a common travel area with the U.K. since the foundation of the state. These challenges and the economic risks to our SME sector in particular, far outweigh any potential gains in financial services jobs that may come our way."

In the meantime, Ireland's politics face a rocky road ahead. Main opposition party Fianna Fail on Friday tabled a motion of no confidence in Deputy Prime Minister Frances Fitzgerald, leader of the Fine Gael party, which leads a minority government. The government now faces the possibility of collapse, which would force a snap election in December and plunge Ireland into uncertainty.

The traditionally Catholic republic recently experienced new breakthroughs beyond just economic. Prime Minister Leo Varadkar of Fine Gael, who entered office in June 2017 at age 38, is the youngest person to hold the office. He is also is the first government minister of Indian descent, and the first to be openly gay.