Ireland

The antinomies of two-track development in Ireland

This paper teases out the explanatory role of changes in Ireland’s domestic political configuration for its shifting economic performance. It traces these changes across three phases of European integration: from accession to implementation of the Single Market and adoption of the Maastricht Treaty; the run-up to EMU; and the experience of membership of the Eurozone.
Ireland’s membership of the EU enabled it to deepen a prior commitment to attracting foreign direct investment, through a policy mix that included low corporate income tax. This has both extended Ireland’s trade links with continental Europe while also maintaining strong links with the British and US economies. Ireland was perceived to have made a success of EU membership. The Irish growth trajectory, which took off in the 1990s and 2000s, depended heavily on export orientation. But this was mostly confined to the foreign-owned sector of the economy. Domestic sectors such as banking, property and housing development, food-processing, were subject to strong non-market distorting influences. Cheap credit conditions under EMU strengthened the dominant domestic coalitions so as to intensify the effects of a property boom. With the onset of crisis, a very large private debt overhang therefore ran alongside a large public deficit, itself boosted though not solely caused by the scale of bank rescues.