Global Agenda: Irish binge

There are benefits to being a small nation that is a member of the EU and its currency union.

ireland 88 (photo credit: )
ireland 88
(photo credit: )
It's always a pleasure to visit Ireland. The people are pleasant and friendly, the atmosphere is one of peace and quiet - just the tonic for the Israeli visitor - and the countryside is just so incredibly green. On the other hand, as the economists always say, the prices of almost everything are extremely high, so this is not the place for the penny-pinching backpacker. The one important thing that is cheap there, although this is irrelevant to tourists, is money: the price of money, i.e. the rate of interest, is low because Ireland is part of the euro zone and hence benefits from euro interest rates. These are determined by the European Central Bank in Frankfurt, whose Europe-wide remit is inevitably skewed by the massive weight of Germany, France and Italy - the three malfunctioning, sclerotic and chronically underperforming economies whose woes are pulling down the whole euro area and keeping interest rates low. The result is that Ireland, like other small, fast-growing economies on the fringe of the euro area, has interest rates much lower than would prevail if it was still an autonomous economic entity. The result of that is a real estate boom so massive that it makes the property speculators of London, New York and even Florida look timid. Ireland, then, is the counterpoint to Switzerland, the subject of last week's column on the advantages of being a small economy adjacent to, but not actually in - and hence still autonomous from - the euro area. The Irish economic miracle, that in the space of scarcely 10 years from 1987, turned a backward economy with a large agricultural sector and a 200-year tradition of emigration and decline, into the famed "Celtic Tiger," which focused on hi-tech and attracted streams of young people from across Europe and the world - and, above all else, turned the Irish into probably the richest nation in Europe. Not only rich, but - unlike the angst-ridden Germans and dour Scandinavians - happy, optimistic and determined to enjoy life to the fullest. The conclusion, therefore, would seem to be clear: there are wonderful benefits to be had from being a small country that is a member both of the EU and of the currency union it has spawned. The Swiss may - typically - trumpet the virtues of going your own way and maintaining a prickly and increasingly impractical independence, but the Irish demonstrate the other side of the coin. Allowing your currency to be run out of Frankfurt and most of the rest of the economy to be controlled from Brussels can be delightful - if you have an open, entrepreneurial society with strong links to America and have invested in an excellent education system. Two more different nations than the Swiss and the Irish would be difficult to imagine. If they can both achieve success, and maybe even happiness, by going their own different ways - then good luck to both of them. The real question is whether the Irish approach can hold up over the long term - and the answer is quite likely negative. The Irish are flush with the cheap and easy money that the single currency has provided them, thanks mainly to German frugality, and they seem intent on blowing it. In addition to flashy spending of the usual sort - the rate of ownership of BMWs and Mercedes in Ireland is higher than in Germany - they are hooked on a crazed binge of property buying. This encompasses both their own real estate - so that derelict barns in remote country villages fetch six-figure euro prices - and others' too, especially in the developing East European countries, from Poland down to Bulgaria. Meanwhile, with regard to its infrastructure, Ireland itself remains decades, in some respects generations, behind its West European peers. Israel, itself a laggard, is a paragon compared to the ballyhooed Irish (remember Bibi's extolling of Irish achievements?). Their road network is like ours was 15 years ago, before we began spending money on it, and their rail network seems to be unchanged from 50 years ago. As for Dublin airport, the old terminal at Ben-Gurion on a bad day in August was a positive experience, by comparison. Fine houses, fancy cars no roads. That's short-termism run amok, a feel-good formula leading nowhere. The Swiss may not know much about feel-good fixes and they may be unfriendly and cold, but they are the world experts on protecting and enhancing the wealth they steadily accrue. As ever, they are much the safer bet. [email protected]