CELTIC TIGER COLLAPSE CELTIC TIGER GROWTH (1995 2005) 2.1.

.1 Tax Many economists credit Ireland's growth to a low corporate taxation rate (10 to 12.5 percent throughout the late 1990s), and to net transfer payments from members of the European Union like Germany and France that were as high as 4% of gross national product. Since 1956, successive Irish governments have pursued low taxation policies. The rate of taxation in the Irish Republic has for some time been by far the lowest in the EU. This state of affairs has encouraged multinationals not only to invest in the twenty-six counties but also to engage in some distinctive creative accounting practices as well. The relatively lenient fiscal regime that faces multinational corporations operating in the Irish Republic offers an enormous incentive to maximise the profits they declare within the state. Computer companies such as Intel and Apple needed a European base because the continent was one of the key battlegrounds between the global giants. They found it in the Republic of Ireland, which offered spectacularly low rate of taxation on corporate profits. Additionally the Irish and US state cooperated to promote a pro-business agenda. An agreement between both governments allowed US companies to gain credits on higher taxes paid elsewhere and to use these credits to offset charges that could be made against the low tax rate paid in Ireland. This resulted in a huge influx of US capital because Ireland offered a cheap platform for the export of goods into Europe. The US companies investing in Ireland are highly concentrated in electronics, software, health care and pharmaceuticals, services (telesales and financial services). Low tax rates not only meant that multinational companies could retain more of the profits they received from their activities in Ireland they also enabled them to shift profits into Ireland by manipulating transfer prices (prices for intra-firm sales), so that they could reduce their overall global tax liabilities.

The low rate of company tax does induce them to declare additional profits in Ireland, which they do not really make here. This inflates GDP und makes Ireland look richer than it really. Thus the growth of GDP and GDP per capita in Ireland is probably exaggerated. In other words: Due to transfer pricing, Ireland is really not growing as fast as the numbers show, because profits from other countries are included in the GDP of Ireland. If a single event can point to the birth of the Celtic Tiger, it was the Irish states success in attracting Intel to the country in 1990, at a historically high cost to the Irish state. A significant number of IT companies had already located in Ireland during the 1970s and 1980s. But after Intel located its European site for the production of computer chips near Dublin, nearly every major player in the computer industry followed. A similar agglomeration of foreign pharmaceutical companies also located in Ireland. Ireland became highly dependent on the USeconomy. During the shift in Irelands economic tectonic plate towards Europe, there was an even more significant movement towards each other of the US and European Unions economic plates due to globalization. Silicon Valley was starting to invade European producing in the process a dramatical technological revolution. The new MNCs were attracted to Ireland by the very low corporate tax rates-initially a zero per cent corporate tax rate on the profits manufactured exports, and later, a 10% corporate tax rate on manufacturing profits and internationally traded services profits. Ireland was able to offer these attractive tax facilities because the absence of a well established industrial sector already paying substantial corporate taxes. Irelands lack of industrialization, the problem which had restrained the economy in previous decades, suddenly become a plus factor in that it enabled the government to provide tax facilities to MNCs which were not possible in mature industrialized economies.

2.1.2 EU Aid The Republic of Ireland benefited profoundly from EU-membership this did not show very much so in the early membership years but especially in the late 1980s and early 1990s. EU funds were substantial and were invested in infrastructure such as ports, roads, airports, telecommunications, universities and other areas and had a multiplier effect on the economy. Thus, infrastructure was modernized and the productive capacity grew which was attractive to high-tech businesses from abroad. Large sums were invested in human capital through training. Since its independence in 1922, Ireland was heavily dependent on its trading relations with the UK. The EU-membership allowed Ireland to access Europes other large markets. Today, Germany is one of the Republics most important trading partners. According to a EU Commission study about its effects, the single market was even more important than the EU funds. Ireland was a net beneficiary of the Single Market, particularly in its manufacturing sector. Both funds and Single Market helped Ireland significantly to lay the foundation for the sustained economic growth. The EU aid was used to increase investment in the education system and physically helping infrastructure. The increased productive capacity of the Irish economy is sometimes attributed to these investments, which made Ireland more attractive to high-tech businesses, though the libertarian Cato Institute has suggested that the EU transfer payments were economically inefficient and may have actually slowed growth. The conservative Heritage Foundation also attributed transfer payments with no significant role in causing growth. Ireland's membership in the European Union since 1973 helped the country gain access to Europe's large markets. Ireland's trade had previously been predominantly with the United Kingdom. Generally, EU aid of about 3 percent per annum over the 1990s, including physical infrastructure, education and training, and industrial upgrading. Eu has contributed about onehalf of one percentage point to the per-annum growth rate of the 1990s. real GDP growth rate of 8 percent compared to 2 percent for OECD.

2.1.3 Industrial Policies In the 1990s, the provision of subsidies and investment capital by Irish state organizations (such as IDA Ireland) encouraged high-profile companies like Dell, Intel, and Microsoft to locate in Ireland. These companies were attracted to Ireland because of its European Union membership, relatively low wages, government grants and low tax rates. Enterprise Ireland, a state agency, provides financial, technical and social support to start-up businesses. Thanks in part to Irelands successful FDI policies, a number of important related clusters emerged throughout the country. The Information and Communications Telecommunications (ICT) is one of those clusters that emerged in Ireland. The country enticed leading computer hardware and software companies like Intel, Dell, IBM, Microsoft, and Apple to locate their European manufacturing and service operations in Ireland. The country has become a key global location for the pharmaceutical sector. Thirteen of the top fifteen pharmaceutical companies in the world have substantial operations in Ireland. Similarly, more than half of the worlds top fifty banks and almost all major global insurers and mutual funds have a presence in Ireland. This cluster employs more than 40,000 people (including support services). The building of the International Financial Services Centre in Dublin led to the creation of 14,000 high-value jobs in the accounting, legal and financial management sectors. In July 2003 the government established the Science Foundation Ireland on a statutory basis to promote education for highly-skilled careers, particularly in biotechnology and information communications technology, with the additional purpose to invest in science initiatives that aim to further Ireland's knowledge economy.

Europeanization also has been a key element in the transformation of the Irish economy. The trend toward Europeanisation begins in 1973 when Ireland joined the European Economic Community. The benefits to Irelands ailing agricultural sector were obvious and the Common Agricultural Policy (CAP) provided farmers with guaranteed prices for many of their products. Ireland also soon become adept at encouraging inflows of European structural and cogesion fuds. It was suggested that European Union structural funds may have raised Irelands GDP to a level of 4 per cent above what it would otherwise have been. Furthermore, during 1990s it contributed only half of one percentage point of the per annual, growth of the GNP. 2.1.4 Geography and Demographics A favourable time zone difference allows Irish and British employees to work the first part of each day while U.S. workers sleep. U.S. firms were drawn to Ireland by cheap wage costs compared to the UK, and by the limited government intervention in business compared to other EU members, and particularly to countries in Eastern Europe. Growing stability in Northern Ireland brought about by the Good Friday Agreement further established Ireland's ability to provide a stable business environment. Irish workers can communicate effectively with Americans especially compared to other low-wage EU nations such as Portugal and Spain. This factor was vital to U.S. companies choosing Ireland for their European headquarters. It has also been argued that the demographic dividend from the rising ratio of workers to dependents due to falling fertility, and increased female labour market participation, increased income per capita. Ireland has strong educational and research institutions. It has 9 world-renowned universities and 14 Institutes of Technology throughout the country. The strength of Irish educational and research institutions stems in part from the governments commitment to investing in higher education, which has increased by an average of 10% per annum during the last ten years compared to a European average of 3%, and securing the highest-level research talent from Ireland and abroad.7 The quality of Ireland's educational system, the flexibility of a young, English-speaking workforce, and the low rate of employment turnover make Irelands labor force one of the most skilled in the world.

Also, Ireland boasts a highly developed credit and venture capital markets. According to the 2010 World Banks Doing Business Report, Ireland ranks 5th in terms of access to credit and 7th in terms of availability of venture capital. This facilitates investments and economic growth. The growth in employment was the greatest contribution to increasing living standards. Overall, average incomes rose by 125 per cent in real terms between 1987 and 2005. Walsh breaks this increase into three phases: 198794, during which average income grew by 34 per cent ; 19942001, during which it grew by 57 per cent and 20015, when incomes grew by seven per cent (Walsh, 2007: 256). These increases correlate neatly with Riains division of the Celtic Tiger period into three competing state projects: the first was neo-corporatist stabilisation from 1987 to 1994, the second was the developmentalist phase from 1994 to 2000 and the third was the neoliberal tax-cutting phase from 2000. In terms of GDP per capita, Ireland moved over the course of the 1990s from a position of around 60 per cent of the EU average (which it had held since joining the EEC in 1973) to 145.4 per cent in 2006 making it the second richest country in the EU after Luxembourg. However, accepting that GDP significantly inflates real income accruing to Irish residents, gross national income (GNI) is considered a more accurate reflection of relative living standards.1 Taking Irelands GNI per capita lowers its place in 2006 to 125.2 per cent of that of the EU27, or fifth place after Luxembourg, the Netherlands, Austria and Denmark. Table below shows Irelands increase in living standards in comparison to the EU from 2000 to 2006.

2.2 Consequences Ireland was transformed from one of the poorest countries in Western Europe to one of the wealthiest. Disposable income soared to record levels, enabling a huge rise in consumer spending. Unemployment fell from 18% in the late 1980s to 4.5% by the end of 2007 and average industrial wages grew at one of the highest rates in Europe. Inflation brushed 5% per annum towards the end of the 'Tiger' period, pushing Irish prices up to those of Nordic Europe, even though wage rates are roughly the same as in the UK. The National debt has remained constant during the boom, but the GDP to Debt ratio has dropped, due to the dramatic rise in GDP. The new wealth resulted in large investments in modernizing Irish infrastructure and cities. The National Development Plan led to improvements in roads, and new transport services were developed, such as the Luas light rail lines, the Dublin Port Tunnel, and the extension of the Cork Suburban Rail. Local authorities enhanced city streets, and built monuments like the Spire of Dublin. Ireland's trend of net emigration was reversed as the republic became a destination for immigrants. This significantly changed Irish demographics and resulted in expanding multiculturalism, particularly in the Dublin, Cork, Limerick and Galway areas. It was estimated in 2007 that 10% of Irish residents were foreign-born. Most of the new arrivals were citizens of Poland and the Baltic states, many of whom found work in the retail and service sectors. Within Ireland, many young people left 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. However, whilst some semblance of a culture of entrepreneurship exists, foreign-owned companies account for 93% of Ireland's exports.

Many people in Ireland believe that growing consumerism during the boom years eroded the country's culture, with the adoption of American capitalist ideals. While Ireland's historical economic ties to the United Kingdom had often been the subject of criticism, Peader Kirby argues that the new ties to the U.S. economy were met with a "satisfied silence. Nevertheless, voices on the left have decried the "closer to Boston than Berlin" philosophy of the government parties. Writers such as William Wall, Mike McCormick and Gerry Murphy have satirised these developments. Similarly, many Irish people maintain what they consider a pragmatic approach to immigration, saying that it is necessary to bring about further GDP growth and that Ireland, as a nation with a long history of emigration, has an obligation to accept immigrants. Growing wealth was blamed for rising crime levels among youths, particularly alcohol-related violence resulting from increased spending power. However it was also accompanied by rapidly increased life expectancy and very high quality of life ratings. 2.3 Banking Scandals The Anglo Irish Bank hidden loans controversy (also known as the circular transactions controversy) began in the Republic of Ireland in December 2008 when the chairman of Anglo Irish Bank, Ireland's third largest bank, admitted he had hidden a total of 87 million in loans from the bank, triggering a series of incidents which led to the eventual nationalisation of Anglo on 21 January 2009. Sean FitzPatrick subsequently resigned his position and was followed within twenty-four hours by the bank's non-executive director, Lar Bradshaw and chief executive, David Drumm. A new chairman of Anglo, Donal O'Connor, was quickly appointed from the board, a move welcomed by the Irish Minister for Finance, Brian Lenihan. A number of investigations have been launched into the reasons behind the three resignations. The Central Bank of Ireland is carrying out a review of the bank's dealings, although its head of the Financial Regulation, Patrick Neary, has also since resigned his position.

Within days of the initial admission, an announcement was made that Anglo Irish Bank would be one of three (alongside Allied Irish Bank and Bank of Ireland) that would be recapitalised by the Irish government. The recapitalisation of Anglo Irish Bank was expected to be effected in mid-January 2009, following an Extraordinary General Meeting (EGM). Lenihan instead unexpectedly announced the nationalisation of Anglo Irish Bank the night before the EGM due to difficulties he encountered with the recapitalisation process. Recapitalisations of the other two banks mentioned were expected by the end of March 2009 but, according to Taoiseach Brian Cowen, were expected to be finalised in early February 2009 at a total of 7 billion. The nationalisation of Anglo Irish Bank on 21 January 2009 followed two more resignations earlier that month. On 7 January 2009, another director, Willie McAteer, resigned, becoming the fourth casualty of the controversy. Two days later the Financial Regulator Patrick Neary retired amidst much criticism over his handling of the affair. After Anglo nationalisation, the Chairman of Irish Nationwide, Dr Michael Walsh, resigned on 17 February, one week to the day that government-appointed directors announced they were investigating a deposit of billions of euro by Irish Life and Permanent, placed in Anglo Irish Bank before the end of its financial year. Taoiseach Brian Cowen has denied claims that he is protecting a "Golden Circle" of wealthy financiers from being identified. This mysterious group of ten businessmen is said to have received loans from Anglo Irish Bank in return for buying shares, in a move designed to keep the bank afloat.