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Europe: Ireland the Economic Miracle

Europe: Ireland the Economic Miracle. Victor Lindeberg ( Sweden ) Victor Gustafsson ( Sweden ) Graeme Russel (Scotland) Ville Majander ( Finland ) Benedikt Scheckenbach (Germany). Agenda. Introduction Background History Religion The Celtic Tiger Cause

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Europe: Ireland the Economic Miracle

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  1. Europe: Ireland the Economic Miracle Victor Lindeberg (Sweden) Victor Gustafsson (Sweden) Graeme Russel (Scotland) VilleMajander (Finland) Benedikt Scheckenbach (Germany)

  2. Agenda • Introduction • Background • History • Religion • The Celtic Tiger • Cause • Introduction of the Euro & EU Aid • Taxation & Industrial Policies • Demographics & Geopolitics • Effects • Economy • Demographic & Social • Housing Bubble • The Downfall - End oftheCeltic Tiger 2001-2003 • Conclusion / Outlook

  3. The Island ofIreland

  4. Quick facts • 4.6 millionInhabitants • Official languages: Irish / English • Constitutional Government • GDP per capita: 38,500 $ • Unemployment rate at 14% • Public debt: 94.2 % of GDP • 157% of GDP Import/Export

  5. Quick factsCont`d • 1801 Part of the UK • 1922 Indepence • 1973 Member ofthe EU • Partition ofthe Island • RepublicofIreland • Northern Ireland • High levelofeducation

  6. History of Ireland.-A brief overview. • First settlement – 8000BC • Christianity 5th century AD • Viking troubles 800 AD • Ireland becomes English. Henry VIII ca1530. • 17th century Plantations • The first “Great Famine”

  7. History of Ireland.-A brief overview. • United Kingdom of Great Britain and Ireland • The second “Great Famine” • The Irish war of Independence • Northern Ireland & the Irish Free State • The Troubles • The national flag of the republic

  8. Hofstede‘s Cultural Dimension • Power Distance • Individualism • Masculinity • UncertaintyAvoidance

  9. Hofstede‘s Cultural Dimension

  10. Celtic Tiger Introduction

  11. The Celtic TigerWhathappened? 1960s • IDA grants • Low corporatetaxes • 1970s • EEC Membership • Adaptededucationalsystem • 1980s • Strong FDIs • Reputationforhigh-qualitymanu-facturing • 1990s • Develop-mentofclusters in: • Chemicals • ICT • Pharma-ceuticals • 2000s • AdvancedManufactur-ingwithhigh R&D content

  12. EU impacts • Joined the European Economic Community (EEC) in 1973 • In the end of the 1970s Ireland took action against currency fluctuations and joined in the European Monetary System • In 1999 the country entered the European Monetary Union

  13. EU impacts • Being a member of the EEC/EU resulted in EU-backed aid money: Investments were done in: • Agricultural sector • Telecommunication • Education • Infrastructure/High-technology • High-technology related TNCs started to view Ireland as a suiting and appropriate link between the U.S. and Europe

  14. EU impacts • Ireland compared to U.K. • U.K. left the European Exchange Rate Mechanism (ERM) in 1992 • U.K. did not join the EMU • TNCs preferred an English speaking country that was part of the euro-zone, instead of one that was not

  15. Corporatetaxation in Ireland • Lowtaxationpoliciespursuedbygovernmentsfrom 1956 • 10% on profitsfrom 1981-2003 • 12.5% on profits for trading income 2003- • 25% for non-tradingincome • Residentcompaniespaycorporatetax on globalincome • Non-residentcompaniespay on Irish-sourcedincomeonly

  16. Corporatetax in the EU • 23.2% Averagecorporatetax in 2010 • Developedcountriestend to havehigherrates • Austria: 25% • Finland: 26% • France: 33.33% • Spain: 30% • UK: 20-27%

  17. Corporatetaxation in the World

  18. Uniquepossibility • Lowtaxationoriginallypossibledue to lack of industrialbase • Loweringtaxes is difficult • Deficits, cuts in establishedgovernmentprograms • Impossible for countrieswith heavy industrialbase • Industry requiresinfrastructure taxesrequired for upkeep

  19. Effects of Ireland’stax-policy • Lowtaxationattracts FDI • Major MNC’sestablished in Ireland • E.g. Google, Dell, Intel, Microsoft • Transfer of profits to Ireland (Tax-avoidance) • Today, stillused to lowertaxliability • Transfersnottaxed for non-residentcompanies • Comparablylowincometax • Attractsskilled labour

  20. Industrial Policies • Subsidies & Investment capital • IrishGovernmentsubsidisesinvestment in Ireland • Enterprise Ireland • Providessupportservices for startups • Financial, Technical, Social • International Financial Services Centre • 14,000 high-valuejobs • Favourabletax-ratefrom 1987-2005 • Offices for half of the world’s 50 top banks

  21. Geopolitics and geography • Adaptation of government-funded higher education • Investments were made to expand the Regional Technical Colleges and for the building of two new universities • Large share of technical and science graduates

  22. Graduates

  23. Geopolitics and geography • Ireland had relatively high birth rates during the decades leading up to the Celtic Tiger period • Large proportion of women outside the work force during the 1980s resulted in an enlarged labour force

  24. Geopolitics and geography • Making Ireland accessible: • Deregulating the airline market between Ireland and U.K. • This resulted in an increase of passengers, tourist earnings, employments and further cut costs for business people • The IT/technology-industry itself

  25. Real GDP per capita

  26. Annual GDP Growth

  27. Effects: Economy • Rapid GDP growth • 7.8% to 11.5% from 1995 to 2000 • 4.4% to 6.5% from 2001 to 2007 • Somegainswipedaway in the recession • Unemploymentfellfrom 18% in the late 1980’s to 4.5% in 2007 • Currently 14%... • Debt/GDP –ratiofell • Level of Debtremainedconstantbut GDP rose

  28. Governmentdebtas a ratio of GDP

  29. The stockmarket • ISE surgedfromunder 2,000 points to a high of over 10,000 points • Currently at around 2,600

  30. Employment • Unemployment decreased from 18% in late 1980s to as low as 4.2% in 2000 • Economic boom created jobs and had a positive impact on the labour force; increased from 1.2 million in 1993 to 1.8 million by 2003 • MNC’s accounted for 47% of manufacturing employment – Ireland dependent on MNC’s for growth and employment

  31. Unemployment Rate

  32. Immigration • During 1990’s Irish population could not fill positions offered by the MNC’s – negative employment rate • The economic success of ‘Celtic Tiger’ encouraged return of Irish emigrants as well as skilled labour from across Europe • In 1996, for the first time in its history, Ireland had a positive net migration rate • Demand for labour across various sectors, including construction, finance, IT and healthcare

  33. Social Inequality • Economic success can be contrasted with overall effect on society • High poverty rate compared to other EU member states • The ‘at risk of poverty rate’ increased between 1994-2005 • Disparity of income and unequal distribution of wealth epitomised by Michael O’leary

  34. HousingSector • 20 % ofcomplete GNP duringthe boom

  35. Construction • Constructionsofnewbuildings • Employment: 126 000 (1998) 282 000 (2006)

  36. Banklending • 110 Billion Euro in Mortages • Collapse in 2008

  37. Houses • Collapse after 2008

  38. End of the Tiger • 2001-2003 downturn – effect on Irish economy • Contributing factors to recession • Government attempt to maintain growth • MNC’s leaving a sinking ship • Effect on housing Market

  39. Ireland today.-A brief summary. • Recession since 2008 • Irish Banking Scandals • Unemployment an all time high • Mass emigration

  40. Conclusions • Lessonsfromthephenomenon • Competitiveness via policiesandtaxation • Value ofeducation • Applicapletoother countries? • Baltic-countries? • Emerging Asian countries? • Risks • Suddencollapse detrimentaleffects • May compundsocialinequality

  41. Thankyouforyourattention

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