Any scholar of economics confronted with the economic indicators for Ireland can only come to one conclusion: the Irish economy is booming. Business confidence is strong and Irish firms are improving their competitiveness in international markets.
Modesty constrained us from publicising this success story (perhaps we didn't believe it ourselves) but when Morgan Stanley labelled Ireland the “Celtic Tiger” the story of our high economic growth rates was out.
More recently, the European Commission projected growth in GDP in the Irish economy at 5.6 per cent in 1996 and 4.9 per cent in 1997, over twice the European average. Ireland stands as one of only three EU countries set to comply with the stringent Maastricht economic convergence criteria for European Monetary Union (EMU).
It is widely recognised that the foundations for the impressive economic performance of the 1990s were laid over a decade ago. By the mid 1980s, Ireland had come through a period of high inflation and growing national debt. Current budget deficits were running out of control, unemployment was rising and real fixed investment was in decline.
A series of stringent fiscal and monetary policy adjustments were implemented to address these difficulties. Central to these was a decision to shadow the Deutschmark, in effect adopting a monetary policy consistent with that of the Bundesbank. A successful incomes policy was developed to control labour costs and increase competitiveness. Strict disciplines were also imposed over public expenditure.
After a slow build-up in the early 1990s, the Irish economy has raced ahead over the past two years, justifying its classification as a tiger economy. Growth in gross national product in 1994 and 1995, at 6.7 per cent and 7.4 per cent respectively, places Ireland as the best performing economy in the European Union.
A number of key factors underpin this economic growth. Ireland is set to benefit from transfers of about IR£5 billion from the EU. The funds are being used to develop the productive sector, enhance human resource capability and improve economic infrastructure.
The peace process has also been beneficial to the whole of Ireland. Total overseas tourism grew by 15 per cent in 1995, and 1996 is expected to show continuing growth of between 10 per cent and 15 per cent.
Prospects of a peaceful and improved political environment have helped break down major psychological barriers north and south of the border. Companies in the Republic now have a much more positive attitude towards investing in Northern Ireland.
Another factor is the significant direct foreign investment in Ireland. A major part of this investment has been in the electronics industry. The availability of young, well-educated people qualified in the electronics field is a major attraction to high-tech multinationals in choosing Ireland as a base.
Inward investment has not been limited to the high-tech sector. The initiative taken in the late 1980s to establish the Dublin International Financial Centre (IFSC) has also been successful. Tax and other incentives include a 10 per cent rate of tax on trading profits, advanced capital allowance and a 10-year rates-free period.
The Programme for Competitiveness and Work (PCW) has also had a part to play. This consensus between the Irish government and the trade unions on a range of employment matters and incomes policy has helped restrain domestic inflationary pressures through continued moderation of wage inflation.
The prudent monetary and fiscal policies adopted in the late 1980s are still in evidence today. Ireland's national debt is falling and its annual exchequer borrowing is currently less than 2 per cent of its GNP.
Against this background, it is worth considering potential clouds on the horizon. Despite the growth in economic activity, unemployment still remains unacceptably high, at just under 13 per cent of the workforce. In recent years, Ireland has needed to create a significant level of new jobs each year, not only to make inroads into existing unemployment numbers, but also to provide for the increasing number of young people entering the workforce for the first time, and the growing numbers of emigrants of the 1980s returning to their native soil.
There will be a significant reduction in EU transfers after 1999. And the impact of European monetary union will also have to be considered. The UK (Ireland's largest trading partner) does not fulfil any entry criteria, and the UK Government's commitment to EMU is less than whole-hearted. Any depreciation of sterling outside EMU would cause a loss of competitiveness for Irish exporters to the UK.
The multinational sector may also cause problems. While Ireland has enjoyed enormous success in attracting direct foreign investment, there are always concerns about the mobility of such investment. Recently some firms have withdrawn, causing job losses.
The expiry of the PCW in 1997 may cause trouble. There have been some indications that the unions have concerns about the programme, which may pose difficulties in negotiating any further programme.
But against this, the generally positive background means companies are performing well. This resulted in an increase in the level of merger and acquisition activity in both 1994 and 1995. There are large amounts of relatively cheap capital available to fund business growth. The improving economic climate has also seen a significant increase in property transactions. For the legal and financial services communities, this is all very good news. Long may the Celtic Tiger roar.