Economy of the Republic of Ireland
Encyclopedia
The economy of Ireland has transformed in recent years from an agricultural focus to a modern knowledge economy
, focusing on services and high-tech industries and dependent on trade, industry and investment. In terms of GDP per capita, Ireland
is ranked as one of the wealthiest countries in the OECD and the EU-27 at 5th in the OECD-28 rankings as of 2008. In terms of GNP
per capita, a better measure of national income, Ireland ranks below the OECD average, despite significant growth in recent years, at 10th in the OECD-28 rankings. GDP (national output) is significantly greater than GNP (national income) due to the repatriation of profits and royalty payments by multinational firms based in Ireland. A 2005 study by The Economist found Ireland to have the best quality of life
in the world. The 1995 to 2000 period of high economic growth led many to call the country the Celtic Tiger
. One of the keys to this economic growth was a low corporation tax, currently at 12.5% standard rate.
The Financial Crisis of 2008 still affects the Irish economy severely, compounding domestic economic problems related the collapse of the Irish property bubble
. Ireland was the first country in the EU to officially enter a recession as declared by the Central Statistics Office. The ESRI
recently predicted that the Irish economy will not significantly recover until 2011. Ireland now has the highest level of household debt relative to disposable income in the developed world at 190%. The economic climate has led to resumed emigration.
with Britain in the 1930s, and a policy of import substitution. During the 1950s, 400,000 people emigrated from Ireland. It became increasingly clear that economic nationalism was unsustainable. While other European countries enjoyed fast growth, Ireland suffered economic stagnation. The policy changes were drawn together in Economic Development, an official paper published in 1958 that advocated free trade
, foreign investment, and growth rather than fiscal restraint as the prime objective of economic management.
In the 1970s, the population increased by 15% and national income increased at an annual rate of about 4%. Employment increased by around 1% per year, but the state sector amounted to a large part of that. Public sector employment was a third of the total workforce by 1980. Budget deficits and public debt increased, leading to the crisis in the 1980s. During the 1980s, underlying economic problems became pronounced. Middle income workers were taxed 60% of their marginal income, unemployment had risen to 20%, annual overseas emigration reached over 1% of population, and public deficits reached 15% of GDP.
In 1987 Fianna Fáil
reduced public spending, cut taxes, and promoted competition. Ryanair
used Ireland's deregulated aviation market and helped European regulators to see benefits of competition in transport markets. Intel invested in 1989 and was followed by a number of technology companies such as Microsoft
and Google
. A consensus exists among all government parties about the sustained economic growth. The GDP per capita in the OECD prosperity ranking rose from 21st in 1993 to 4th in 2002. Between 1985 and 2002, private sector jobs increased 59%. The economy shifted from an agriculture to a knowledge economy
, focusing on services and high-tech industries. Economic growth averaged 10% from 1995 to 2000, and 7% from 2001 to 2004. Industry
, which accounts for 46% of GDP
and about 80% of exports, has replaced agriculture
as the country's leading sector.
, which is a neo-corporatist
set of voluntary 'pay pacts' between the Government, employers and trade union
s. The 1995 to 2000 period of high economic growth was called the "Celtic Tiger", a reference to the "tiger economies" of East Asia. GDP growth continued to be relatively robust, with a rate of about 6% in 2001, over 4% in 2004, and 4.7% in 2005. With high growth came high inflation. Prices in Dublin were considerably higher than elsewhere in the country, especially in the property market. However, property prices are falling following the recent economic recession. At the end of July 2008, the annual rate of inflation was at 4.4% (as measured by the CPI
) or 3.6% (as measured by the HICP
) and inflation actually dropped slightly from the previous month.
In terms of GDP per capita, Ireland is ranked as one of the wealthiest countries in the OECD and the EU-27, at 4th in the OECD-28 rankings. In terms of GNP
per capita, a better measure of national income, Ireland ranks below the OECD average, despite significant growth in recent years, at 10th in the OECD-28 rankings. GDP is significantly greater than GNP
(national income) due to the large amount of multinational firms based in Ireland. A 2005 study by The Economist found Ireland to have the best quality of life
in the world. The positive reports and economic statistics masked several underlying imbalances. The construction sector, which was inherently cyclical in nature, accounted for a significant component of Ireland's GDP. A recent downturn in residential property market sentiment has highlighted the over-exposure of the Irish economy to construction, which now presents a threat to economic growth.
Despite several successive years of economic growth and significant improvements since 2000, Ireland's population is marginally more at risk of poverty than the EU-15 average and 6.8% of the population suffer "consistent poverty".
Ireland is currently ranked as the world's third most "economically free" economy in an index created by free-market economists from the Wall Street Journal and Heritage Foundation
, the Index of Economic Freedom
.
ratings agency in August 2010 due to the cost of supporting the banks, which would weaken the Government's financial flexibility over the medium term. It transpired that the cost of recapitalising the banks was greater than expected at that time, and, in response to the mounting costs, the country's credit rating was again downgraded by Standard & Poor's to "A".
The global recession
has significantly impacted the Irish economy. Economic growth was 4.7% in 2007, but -1.7% in 2008 and -7.1% in 2009. In mid 2010, Ireland looked like it was about to exit recession in 2010 following growth of 0.3% in Q4 of 2009 and 2.7% in Q1 of 2010. The government forecast a 0.3% expansion. But, the economy experienced Q2 negative growth of -1.2%, and in the fourth quarter, the GDP shrunk by 1.6%. Overall, the GDP was reduced by 1% in 2010, making it the third consecutive year of negative growth.. Ireland has recorded the biggest month-on-month rise for industrial production across the eurozone
, with 7.9% growth in September compared to August, followed by Estonia
(3.6%) and Denmark
(2.7%).
. The question concerning solvency has arisen due to domestic problems in the crashing Irish property market
. Irish financial institutions have substantial exposure to property developers in their loan portfolio. These property developers are currently suffering from substantial over-supply of property, much still unsold, while demand has evaporated. The employment growth of the past that attracted many immigrants from Eastern Europe and propped up demand for property has been replaced by rapidly rising unemployment. Irish property developers speculated
billions of Euros in overvalued land parcels such as urban brownfield and greenfield sites. They also speculated in agricultural land which, in 2007, had an average value of €23,600 per acre
($32,000 per acre or €60,000 per hectare
) which is several multiples above the value of equivalent land in other European countries. Lending to builders and developers has grown to such an extent that it equals 28% of all bank lending, or "the approximate value of all public deposits with retail banks. Effectively, the Irish banking system has taken all its shareholders' equity, with a substantial chunk of its depositors' cash on top, and handed it over to builders and property speculators.....By comparison, just before the Japanese bubble burst in late 1989, construction and property development had grown to a little over 25 per cent of bank lending."
Irish banks correctly identify a systematic risk of triggering an even more severe financial crisis in Ireland if they were to call in the loans as they fall due. The loans are subject to terms and conditions, referred to as "covenants". These covenants are being waived in fear of provoking the (inevitable) bankruptcy of many property developers and banks are thought to be "lending some developers further cash to pay their interest bills, which means that they are not classified as 'bad debts' by the banks". Furthermore, the banks' "impairment" (bad debt) provisions are still at very low levels.
This does not appear to be consistent with the real negative changes taking place in property market fundamentals.
In contrast, on the 7th of October 2008, Danske Bank
wrote off a substantial sum largely due to property-related losses incurred by its Irish subsidiary - National Irish Bank
. The 3.18% charge against the loan book of its Irish operations is the first significant write off to take place and is a modest indication of the extent of the more substantial future charges to be incurred by the over-exposed domestic banks. Asset write downs by the domestically-owned Irish banks are only now slowly beginning to take place
Despite the Government guarantees to the banks, their shareholder value continued to decline and on 2009-01-15, the Government nationalised Anglo Irish Bank
, which had a market capitalisation of less than 2% of its peak in 2007. Subsequent to this, further pressure came on the other two large Irish banks, who on 2009-01-19, had share values fall by between 47 and 50% in one day. As of 11 October 2008, leaked reports of possible actions by the government to artificially prop up the property developers have been revealed.
is to increase to 23% by 2014 and a property tax
and domestic water charges are to be introduced.
. Zinc-lead ores are also currently mined from two other underground operations in Lisheen
and Galmoy
. Ireland now ranks as the seventh largest producer of zinc concentrates in the world, and the twelfth largest producer of lead concentrates. The combined output from these mines make Ireland the largest zinc producer in Europe and the second largest producer of lead. Ireland is the world's most profitable country for US corporations, according to the US
tax journal Tax Notes. The country is one of the largest exporters of pharmaceuticals and software-related goods and services in the world. Bord Gáis
is responsible for the supply and distribution of natural gas
, which was first brought ashore in 1976 from the Kinsale Head gas field
. Electrical generation from peat consumption, as a percent of total electrical generation, was reduced from 18.8% to 6.1%, between 1990 and 2004. A forecast by Sustainable Energy Ireland predicts that oil will no longer be used for electrical generation but natural gas will be dominant at 71.3% of the total share, coal at 9.2%, and renewable energy at 8.2% of the market. New sources are expected to come on stream after 2010, including the Corrib gas field
and potentially the Shannon Liquefied Natural Gas terminal
.
In its Globalization Index 2010 published in January 2011 Ernst and Young with the Economist Intelligence Unit
ranked Ireland second after Hong Kong
. The index ranks 60 countries according to their degree of globalization relative to their GDP. While the Irish economy has significant debt problems in 2011, exporting remains a success.
is conformed with, Ireland's agriculture industry is expected to decline in importance. In the late nineteenth century, the island was mostly deforested. In 2005, after years of national afforestation programmes, about 9% of Ireland has become forested. It is still the least forested country in the EU and heavily relies on imported wood. Its coastline - once abundant in fish, particularly cod
- has suffered overfishing and since 1995 the fisheries industry has focused more on aquaculture
. Freshwater salmon and trout stocks in Ireland's waterways have also been depleted but are being better managed. Ireland is a major exporter of zinc to the EU and mining also produces significant quantities of lead and alumina. Beyond this, the country has significant deposits of gypsum
, limestone
, and smaller quantities of copper
, silver
, gold
, barite
, and dolomite
. Peat extraction has historically been important, especially from midland bogs, however more efficient fuels and environmental protection of bogs has reduced peat's importance to the economy. Natural gas extraction occurs in the Kinsale Gas Field and the Corrib Gas Field in the southern and western counties, where there is 19.82 bn cubic metres of proven reserves.
The construction sector, which is inherently cyclical in nature, now accounts for a significant component of Ireland's GDP. A recent downturn in residential property market sentiment has highlighted the over-exposure of the Irish economy to construction, which now presents a threat to economic growth.
While there are over 60 credit institutions incorporated in Ireland, the banking system is dominated by the Big Four - AIB Bank
, Bank of Ireland
, Ulster Bank
and National Irish Bank
. There is a large Credit Union
movement within the country which offers an alternative to the banks. The Irish Stock Exchange
is in Dublin, however, due to its small size, many firms also maintain listings on either the London Stock Exchange
or the NASDAQ
. The insurance industry in Ireland is a leader in both retail markets and corporate customers in the EU, in large part due to the International Financial Services Centre
.
, single-income couples with and without children) was the third highest of the OECD countries (jointly with Iceland
) after Denmark
and Switzerland
. Jobseeker's Allowance
or Jobseeker's Benefit
for a single person in Ireland is €188 per week, as of March 2011. This compares to £65.45 (~ €76.11) per week for a single person aged 25 or over in the UK.
State provided old age pensions are also relatively generous in Ireland. The maximum weekly rate for the State Pension (Contributory) is €230.30 for a single pensioner
aged between 66 and 80 (€436.60 for a pensioner couple in the same age range). The maximum weekly rate for the State Pension (Non-Contributory) is €219 for a single pensioner aged between 66 and 80 (€363.70 for a pensioner couple in the same age range).
scale was 30.4 in 2000, slightly below the OECD average of 31. Sustained increases in the value of residential property during the 1990s and up to late 2006 was a key factor in the increase in personal wealth in Ireland, with Ireland ranking second only to Japan
in personal wealth in 2006. However, residential property values and equities have fallen substantially since the beginning of 2007 and major declines in personal wealth are expected.
and coins
in January 2002, Ireland used the Irish pound
or punt. In January 1999 Ireland was one of eleven European Union member states which launched the European Single Currency, the euro
. Euro banknotes are issued in €5, €10, €20, €50, €100, €200 and €500 denominations and share the common design used across Europe, however like other countries in the eurozone, Ireland has its own unique design on one face of euro coins. The government decided on a single national design for all Irish coin denominations, which show a Celtic harp
, a traditional symbol of Ireland, decorated with the year of issue and the word Éire.
Knowledge economy
The knowledge economy is a term that refers either to an economy of knowledge focused on the production and management of knowledge in the frame of economic constraints, or to a knowledge-based economy. In the second meaning, more frequently used, it refers to the use of knowledge technologies to...
, focusing on services and high-tech industries and dependent on trade, industry and investment. In terms of GDP per capita, Ireland
Republic of Ireland
Ireland , described as the Republic of Ireland , is a sovereign state in Europe occupying approximately five-sixths of the island of the same name. Its capital is Dublin. Ireland, which had a population of 4.58 million in 2011, is a constitutional republic governed as a parliamentary democracy,...
is ranked as one of the wealthiest countries in the OECD and the EU-27 at 5th in the OECD-28 rankings as of 2008. In terms of GNP
GNP
Gross National Product is the market value of all products and services produced in one year by labor and property supplied by the residents of a country...
per capita, a better measure of national income, Ireland ranks below the OECD average, despite significant growth in recent years, at 10th in the OECD-28 rankings. GDP (national output) is significantly greater than GNP (national income) due to the repatriation of profits and royalty payments by multinational firms based in Ireland. A 2005 study by The Economist found Ireland to have the best quality of life
Quality of life
The term quality of life is used to evaluate the general well-being of individuals and societies. The term is used in a wide range of contexts, including the fields of international development, healthcare, and politics. Quality of life should not be confused with the concept of standard of...
in the world. The 1995 to 2000 period of high economic growth led many to call the country the Celtic Tiger
Celtic Tiger
Celtic Tiger is a term used to describe the economy of Ireland during a period of rapid economic growth between 1995 and 2007. The expansion underwent a dramatic reversal from 2008, with GDP contracting by 14% and unemployment levels rising to 14% by 2010...
. One of the keys to this economic growth was a low corporation tax, currently at 12.5% standard rate.
The Financial Crisis of 2008 still affects the Irish economy severely, compounding domestic economic problems related the collapse of the Irish property bubble
Irish property bubble
The property bubble in the Republic of Ireland began in 2000 and peaked in 2006, as with many other western European countries, with a combination of increased speculative construction and rapidly rising prices....
. Ireland was the first country in the EU to officially enter a recession as declared by the Central Statistics Office. The ESRI
Economic and Social Research Institute
The Economic and Social Research Institute is a think tank in Dublin, Ireland. Its research focuses on Ireland's economic and social development in order to inform policy-making and societal understanding....
recently predicted that the Irish economy will not significantly recover until 2011. Ireland now has the highest level of household debt relative to disposable income in the developed world at 190%. The economic climate has led to resumed emigration.
Since the Irish Free State
From the 1920s Ireland had high trade barriers such as high tariffs, particularly during the Economic WarAnglo-Irish Trade War
The Anglo-Irish Trade War was a retaliatory trade war between the Irish Free State and the United Kingdom lasting from 1932 until 1938...
with Britain in the 1930s, and a policy of import substitution. During the 1950s, 400,000 people emigrated from Ireland. It became increasingly clear that economic nationalism was unsustainable. While other European countries enjoyed fast growth, Ireland suffered economic stagnation. The policy changes were drawn together in Economic Development, an official paper published in 1958 that advocated free trade
Free trade
Under a free trade policy, prices emerge from supply and demand, and are the sole determinant of resource allocation. 'Free' trade differs from other forms of trade policy where the allocation of goods and services among trading countries are determined by price strategies that may differ from...
, foreign investment, and growth rather than fiscal restraint as the prime objective of economic management.
In the 1970s, the population increased by 15% and national income increased at an annual rate of about 4%. Employment increased by around 1% per year, but the state sector amounted to a large part of that. Public sector employment was a third of the total workforce by 1980. Budget deficits and public debt increased, leading to the crisis in the 1980s. During the 1980s, underlying economic problems became pronounced. Middle income workers were taxed 60% of their marginal income, unemployment had risen to 20%, annual overseas emigration reached over 1% of population, and public deficits reached 15% of GDP.
In 1987 Fianna Fáil
Fianna Fáil
Fianna Fáil – The Republican Party , more commonly known as Fianna Fáil is a centrist political party in the Republic of Ireland, founded on 23 March 1926. Fianna Fáil's name is traditionally translated into English as Soldiers of Destiny, although a more accurate rendition would be Warriors of Fál...
reduced public spending, cut taxes, and promoted competition. Ryanair
Ryanair
Ryanair is an Irish low-cost airline. Its head office is at Dublin Airport and its primary operational bases at Dublin Airport and London Stansted Airport....
used Ireland's deregulated aviation market and helped European regulators to see benefits of competition in transport markets. Intel invested in 1989 and was followed by a number of technology companies such as Microsoft
Microsoft
Microsoft Corporation is an American public multinational corporation headquartered in Redmond, Washington, USA that develops, manufactures, licenses, and supports a wide range of products and services predominantly related to computing through its various product divisions...
and Google
Google
Google Inc. is an American multinational public corporation invested in Internet search, cloud computing, and advertising technologies. Google hosts and develops a number of Internet-based services and products, and generates profit primarily from advertising through its AdWords program...
. A consensus exists among all government parties about the sustained economic growth. The GDP per capita in the OECD prosperity ranking rose from 21st in 1993 to 4th in 2002. Between 1985 and 2002, private sector jobs increased 59%. The economy shifted from an agriculture to a knowledge economy
Knowledge economy
The knowledge economy is a term that refers either to an economy of knowledge focused on the production and management of knowledge in the frame of economic constraints, or to a knowledge-based economy. In the second meaning, more frequently used, it refers to the use of knowledge technologies to...
, focusing on services and high-tech industries. Economic growth averaged 10% from 1995 to 2000, and 7% from 2001 to 2004. Industry
Industry
Industry refers to the production of an economic good or service within an economy.-Industrial sectors:There are four key industrial economic sectors: the primary sector, largely raw material extraction industries such as mining and farming; the secondary sector, involving refining, construction,...
, which accounts for 46% of GDP
Gross domestic product
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....
and about 80% of exports, has replaced agriculture
Agriculture
Agriculture is the cultivation of animals, plants, fungi and other life forms for food, fiber, and other products used to sustain life. Agriculture was the key implement in the rise of sedentary human civilization, whereby farming of domesticated species created food surpluses that nurtured the...
as the country's leading sector.
Celtic Tiger
The economy benefited from a rise in consumer spending, construction, and business investment. Since 1987, a key part of economic policy has been Social PartnershipSocial Partnership
Social partnership is the term used for the tripartite, triennial national pay agreements reached in Ireland.The process was initiated in 1987, following a period of high inflation and weak economic growth which led to increased emigration and unsustainable government borrowing and national debt...
, which is a neo-corporatist
Corporatism
Corporatism, also known as corporativism, is a system of economic, political, or social organization that involves association of the people of society into corporate groups, such as agricultural, business, ethnic, labor, military, patronage, or scientific affiliations, on the basis of common...
set of voluntary 'pay pacts' between the Government, employers and trade union
Trade union
A trade union, trades union or labor union is an organization of workers that have banded together to achieve common goals such as better working conditions. The trade union, through its leadership, bargains with the employer on behalf of union members and negotiates labour contracts with...
s. The 1995 to 2000 period of high economic growth was called the "Celtic Tiger", a reference to the "tiger economies" of East Asia. GDP growth continued to be relatively robust, with a rate of about 6% in 2001, over 4% in 2004, and 4.7% in 2005. With high growth came high inflation. Prices in Dublin were considerably higher than elsewhere in the country, especially in the property market. However, property prices are falling following the recent economic recession. At the end of July 2008, the annual rate of inflation was at 4.4% (as measured by the CPI
Consumer price index
A consumer price index measures changes in the price level of consumer goods and services purchased by households. The CPI, in the United States is defined by the Bureau of Labor Statistics as "a measure of the average change over time in the prices paid by urban consumers for a market basket of...
) or 3.6% (as measured by the HICP
Harmonised Index of Consumer Prices
The Harmonised Index of Consumer Prices is an indicator of inflation and price stability for the European Central Bank . It is a consumer price index which is compiled according to a methodology that has been harmonised across EU countries. The euro area HICP is a weighted average of price...
) and inflation actually dropped slightly from the previous month.
In terms of GDP per capita, Ireland is ranked as one of the wealthiest countries in the OECD and the EU-27, at 4th in the OECD-28 rankings. In terms of GNP
GNP
Gross National Product is the market value of all products and services produced in one year by labor and property supplied by the residents of a country...
per capita, a better measure of national income, Ireland ranks below the OECD average, despite significant growth in recent years, at 10th in the OECD-28 rankings. GDP is significantly greater than GNP
GNP
Gross National Product is the market value of all products and services produced in one year by labor and property supplied by the residents of a country...
(national income) due to the large amount of multinational firms based in Ireland. A 2005 study by The Economist found Ireland to have the best quality of life
Quality of life
The term quality of life is used to evaluate the general well-being of individuals and societies. The term is used in a wide range of contexts, including the fields of international development, healthcare, and politics. Quality of life should not be confused with the concept of standard of...
in the world. The positive reports and economic statistics masked several underlying imbalances. The construction sector, which was inherently cyclical in nature, accounted for a significant component of Ireland's GDP. A recent downturn in residential property market sentiment has highlighted the over-exposure of the Irish economy to construction, which now presents a threat to economic growth.
Despite several successive years of economic growth and significant improvements since 2000, Ireland's population is marginally more at risk of poverty than the EU-15 average and 6.8% of the population suffer "consistent poverty".
Ireland is currently ranked as the world's third most "economically free" economy in an index created by free-market economists from the Wall Street Journal and Heritage Foundation
Heritage Foundation
The Heritage Foundation is a conservative American think tank based in Washington, D.C. Heritage's stated mission is to "formulate and promote conservative public policies based on the principles of free enterprise, limited government, individual freedom, traditional American values, and a strong...
, the Index of Economic Freedom
Index of Economic Freedom
The Index of Economic Freedom is a series of 10 economic measurements created by The Heritage Foundation and The Wall Street Journal. Its stated objective is to measure the degree of economic freedom in the world's nations....
.
Financial Crisis 2008
It was the first country in the EU to officially enter a recession as declared by the Central Statistics Office. Ireland now has the second-highest level of household debt in the world (190% of household income). The country's credit rating was downgraded to "AA-" by Standard & Poor'sStandard & Poor's
Standard & Poor's is a United States-based financial services company. It is a division of The McGraw-Hill Companies that publishes financial research and analysis on stocks and bonds. It is well known for its stock-market indices, the US-based S&P 500, the Australian S&P/ASX 200, the Canadian...
ratings agency in August 2010 due to the cost of supporting the banks, which would weaken the Government's financial flexibility over the medium term. It transpired that the cost of recapitalising the banks was greater than expected at that time, and, in response to the mounting costs, the country's credit rating was again downgraded by Standard & Poor's to "A".
The global recession
Global recession
A global recession is a period of global economic slowdown. The International Monetary Fund takes many factors into account when defining a global recession, but it states that global economic growth of 3 percent or less is "equivalent to a global recession".By this measure, four periods since...
has significantly impacted the Irish economy. Economic growth was 4.7% in 2007, but -1.7% in 2008 and -7.1% in 2009. In mid 2010, Ireland looked like it was about to exit recession in 2010 following growth of 0.3% in Q4 of 2009 and 2.7% in Q1 of 2010. The government forecast a 0.3% expansion. But, the economy experienced Q2 negative growth of -1.2%, and in the fourth quarter, the GDP shrunk by 1.6%. Overall, the GDP was reduced by 1% in 2010, making it the third consecutive year of negative growth.. Ireland has recorded the biggest month-on-month rise for industrial production across the eurozone
Eurozone
The eurozone , officially called the euro area, is an economic and monetary union of seventeen European Union member states that have adopted the euro as their common currency and sole legal tender...
, with 7.9% growth in September compared to August, followed by Estonia
Estonia
Estonia , officially the Republic of Estonia , is a state in the Baltic region of Northern Europe. It is bordered to the north by the Gulf of Finland, to the west by the Baltic Sea, to the south by Latvia , and to the east by Lake Peipsi and the Russian Federation . Across the Baltic Sea lies...
(3.6%) and Denmark
Denmark
Denmark is a Scandinavian country in Northern Europe. The countries of Denmark and Greenland, as well as the Faroe Islands, constitute the Kingdom of Denmark . It is the southernmost of the Nordic countries, southwest of Sweden and south of Norway, and bordered to the south by Germany. Denmark...
(2.7%).
Bank solvency
The second problem, unacknowledged by management of Irish banks, the financial regulator and the Irish government, is solvencySolvency
Solvency, in finance or business, is the degree to which the current assets of an individual or entity exceed the current liabilities of that individual or entity. Solvency can also be described as the ability of a corporation to meet its long-term fixed expenses and to accomplish long-term...
. The question concerning solvency has arisen due to domestic problems in the crashing Irish property market
Irish property bubble
The property bubble in the Republic of Ireland began in 2000 and peaked in 2006, as with many other western European countries, with a combination of increased speculative construction and rapidly rising prices....
. Irish financial institutions have substantial exposure to property developers in their loan portfolio. These property developers are currently suffering from substantial over-supply of property, much still unsold, while demand has evaporated. The employment growth of the past that attracted many immigrants from Eastern Europe and propped up demand for property has been replaced by rapidly rising unemployment. Irish property developers speculated
Speculation
In finance, speculation is a financial action that does not promise safety of the initial investment along with the return on the principal sum...
billions of Euros in overvalued land parcels such as urban brownfield and greenfield sites. They also speculated in agricultural land which, in 2007, had an average value of €23,600 per acre
Acre
The acre is a unit of area in a number of different systems, including the imperial and U.S. customary systems. The most commonly used acres today are the international acre and, in the United States, the survey acre. The most common use of the acre is to measure tracts of land.The acre is related...
($32,000 per acre or €60,000 per hectare
Hectare
The hectare is a metric unit of area defined as 10,000 square metres , and primarily used in the measurement of land. In 1795, when the metric system was introduced, the are was defined as being 100 square metres and the hectare was thus 100 ares or 1/100 km2...
) which is several multiples above the value of equivalent land in other European countries. Lending to builders and developers has grown to such an extent that it equals 28% of all bank lending, or "the approximate value of all public deposits with retail banks. Effectively, the Irish banking system has taken all its shareholders' equity, with a substantial chunk of its depositors' cash on top, and handed it over to builders and property speculators.....By comparison, just before the Japanese bubble burst in late 1989, construction and property development had grown to a little over 25 per cent of bank lending."
Irish banks correctly identify a systematic risk of triggering an even more severe financial crisis in Ireland if they were to call in the loans as they fall due. The loans are subject to terms and conditions, referred to as "covenants". These covenants are being waived in fear of provoking the (inevitable) bankruptcy of many property developers and banks are thought to be "lending some developers further cash to pay their interest bills, which means that they are not classified as 'bad debts' by the banks". Furthermore, the banks' "impairment" (bad debt) provisions are still at very low levels.
This does not appear to be consistent with the real negative changes taking place in property market fundamentals.
In contrast, on the 7th of October 2008, Danske Bank
Danske Bank
Danske Bank is a Danish bank. The name literally means "Danish Bank" It was founded 5 October 1871 as Den Danske Landmandsbank, Hypothek- og Vexelbank i Kjøbenhavn ....
wrote off a substantial sum largely due to property-related losses incurred by its Irish subsidiary - National Irish Bank
National Irish Bank
National Irish Bank is a commercial bank in Ireland, one of the traditional Big Four. In December 2004 Danske Bank agreed to purchase National Irish Bank from the National Australia Bank for GB£967m ....
. The 3.18% charge against the loan book of its Irish operations is the first significant write off to take place and is a modest indication of the extent of the more substantial future charges to be incurred by the over-exposed domestic banks. Asset write downs by the domestically-owned Irish banks are only now slowly beginning to take place
Guarantee of banking system
On 30 September 2008, the Irish Government declared a guarantee that intends to safeguard the Irish banking system. The Irish State guarantee, backed by taxpayer funds, covers "all deposits (retail, commercial, institutional and interbank), covered bonds, senior debt and dated subordinated debt". In exchange for the bailout, the government did not take preferred equity stakes in the banks (which dilute shareholder value) nor did they demand that top banking executives' salaries and bonuses be capped, or that board members be replaced.Despite the Government guarantees to the banks, their shareholder value continued to decline and on 2009-01-15, the Government nationalised Anglo Irish Bank
Anglo Irish Bank
Anglo Irish Bank was a bank based in Ireland with its headquarters in Dublin from 1964 to 2011. It went into wind-down mode after nationalisation in 2009....
, which had a market capitalisation of less than 2% of its peak in 2007. Subsequent to this, further pressure came on the other two large Irish banks, who on 2009-01-19, had share values fall by between 47 and 50% in one day. As of 11 October 2008, leaked reports of possible actions by the government to artificially prop up the property developers have been revealed.
National Recovery Plan 2011-2014
In November 2010 the Irish Government published the National Recovery plan, which aims to restore order to the public finances and to bring its deficit in line with the EU target of 3% of economic output by 2015. It involves a budget adjustment of €15 billion (€10 billion in public expenditure cuts and €5billion in taxes) over a four-year period. This will be front loaded in 2011 where measures totaling €6 billion are planned. VATVat
Vat or VAT may refer to:* A type of container such as a barrel, storage tank, or tub, often constructed of welded sheet stainless steel, and used for holding, storing, and processing liquids such as milk, wine, and beer...
is to increase to 23% by 2014 and a property tax
Property tax
A property tax is an ad valorem levy on the value of property that the owner is required to pay. The tax is levied by the governing authority of the jurisdiction in which the property is located; it may be paid to a national government, a federated state or a municipality...
and domestic water charges are to be introduced.
Exports
Exports play an important role in Ireland's economic growth. A series of significant discoveries of base metal deposits have been made, including the giant ore deposit at Tara MineTara Mine
Tara Mines is a zinc and lead mine near Navan, County Meath, Ireland. In the Navan ore body Tara is an underground mine where the orebody lies between 50 and 900 metres below surface....
. Zinc-lead ores are also currently mined from two other underground operations in Lisheen
Lisheen Mine
The Lisheen Mine is a lead and zinc mine located between the villages of Moyne and Templetuohy in North Tipperary, Ireland. In the Rathdowney Trend Lisheen is an underground mine where the Lisheen deposit lies at an average depth of 170 metres below surface....
and Galmoy
Galmoy Mine
Galmoy Mine is a zinc and lead mine 50 km northwest of Kilkenny, Ireland. Located in the Rathdowney Trend, Galmoy is an underground mine....
. Ireland now ranks as the seventh largest producer of zinc concentrates in the world, and the twelfth largest producer of lead concentrates. The combined output from these mines make Ireland the largest zinc producer in Europe and the second largest producer of lead. Ireland is the world's most profitable country for US corporations, according to the US
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
tax journal Tax Notes. The country is one of the largest exporters of pharmaceuticals and software-related goods and services in the world. Bord Gáis
Bord Gáis
Bord Gáis Éireann , normally branded as Bord Gáis, is the main supplier and distributor of pipeline natural gas in the Republic of Ireland. The company has built an extensive network across Ireland. The company supplies gas to domestic and industrial customers on a fully regulated basis...
is responsible for the supply and distribution of natural gas
Natural gas
Natural gas is a naturally occurring gas mixture consisting primarily of methane, typically with 0–20% higher hydrocarbons . It is found associated with other hydrocarbon fuel, in coal beds, as methane clathrates, and is an important fuel source and a major feedstock for fertilizers.Most natural...
, which was first brought ashore in 1976 from the Kinsale Head gas field
Kinsale Head gas field
The Kinsale Head gas field is an offshore natural gas field off the southern coast of Ireland discovered in 1973 near Old Head of Kinsale, in the Celtic Sea and met Ireland's gas need until 1996...
. Electrical generation from peat consumption, as a percent of total electrical generation, was reduced from 18.8% to 6.1%, between 1990 and 2004. A forecast by Sustainable Energy Ireland predicts that oil will no longer be used for electrical generation but natural gas will be dominant at 71.3% of the total share, coal at 9.2%, and renewable energy at 8.2% of the market. New sources are expected to come on stream after 2010, including the Corrib gas field
Corrib Gas Field
The Corrib gas project entails the extraction of a natural gas deposit off the northwest coast of Ireland. The project includes a development of the Corrib gas field, and constructions of the natural gas pipeline and a gas processing plant. The project has attracted considerable...
and potentially the Shannon Liquefied Natural Gas terminal
Shannon LNG
Shannon LNG is a proposed Liquefied natural gas receiving terminal on the Shannon Estuary near Ballylongford and Tarbert in County Kerry to be built and operated by Shannon LNG Ltd, a company owned 50/50 by Hess LNG a subsidiary of the US multinational Hess Corporation and US hydrocarbons trading...
.
In its Globalization Index 2010 published in January 2011 Ernst and Young with the Economist Intelligence Unit
Economist Intelligence Unit
The Economist Intelligence Unit is part of the Economist Group.It is a research and advisory company providing country, industry and management analysis worldwide and incorporates the former Business International Corporation, a U.S. company acquired by the parent organization in 1986...
ranked Ireland second after Hong Kong
Hong Kong
Hong Kong is one of two Special Administrative Regions of the People's Republic of China , the other being Macau. A city-state situated on China's south coast and enclosed by the Pearl River Delta and South China Sea, it is renowned for its expansive skyline and deep natural harbour...
. The index ranks 60 countries according to their degree of globalization relative to their GDP. While the Irish economy has significant debt problems in 2011, exporting remains a success.
Primary sector
The primary sector constitutes about 5% of Irish GDP, and 8% of Irish employment. Ireland's main economic resource is its large fertile pastures, particularly the midland and southern regions. In 2004, Ireland exported approximately €7.15 billion worth of agri-food and drink (about 8.4% of Ireland's exports), mainly as cattle, beef, and dairy products, and mainly to the United Kingdom. As the European Union's Common Agricultural PolicyCommon Agricultural Policy
The Common Agricultural Policy is a system of European Union agricultural subsidies and programmes. It represents 48% of the EU's budget, €49.8 billion in 2006 ....
is conformed with, Ireland's agriculture industry is expected to decline in importance. In the late nineteenth century, the island was mostly deforested. In 2005, after years of national afforestation programmes, about 9% of Ireland has become forested. It is still the least forested country in the EU and heavily relies on imported wood. Its coastline - once abundant in fish, particularly cod
Cod
Cod is the common name for genus Gadus, belonging to the family Gadidae, and is also used in the common name for various other fishes. Cod is a popular food with a mild flavor, low fat content and a dense, flaky white flesh. Cod livers are processed to make cod liver oil, an important source of...
- has suffered overfishing and since 1995 the fisheries industry has focused more on aquaculture
Aquaculture
Aquaculture, also known as aquafarming, is the farming of aquatic organisms such as fish, crustaceans, molluscs and aquatic plants. Aquaculture involves cultivating freshwater and saltwater populations under controlled conditions, and can be contrasted with commercial fishing, which is the...
. Freshwater salmon and trout stocks in Ireland's waterways have also been depleted but are being better managed. Ireland is a major exporter of zinc to the EU and mining also produces significant quantities of lead and alumina. Beyond this, the country has significant deposits of gypsum
Gypsum
Gypsum is a very soft sulfate mineral composed of calcium sulfate dihydrate, with the chemical formula CaSO4·2H2O. It is found in alabaster, a decorative stone used in Ancient Egypt. It is the second softest mineral on the Mohs Hardness Scale...
, limestone
Limestone
Limestone is a sedimentary rock composed largely of the minerals calcite and aragonite, which are different crystal forms of calcium carbonate . Many limestones are composed from skeletal fragments of marine organisms such as coral or foraminifera....
, and smaller quantities of copper
Copper
Copper is a chemical element with the symbol Cu and atomic number 29. It is a ductile metal with very high thermal and electrical conductivity. Pure copper is soft and malleable; an exposed surface has a reddish-orange tarnish...
, silver
Silver
Silver is a metallic chemical element with the chemical symbol Ag and atomic number 47. A soft, white, lustrous transition metal, it has the highest electrical conductivity of any element and the highest thermal conductivity of any metal...
, gold
Gold
Gold is a chemical element with the symbol Au and an atomic number of 79. Gold is a dense, soft, shiny, malleable and ductile metal. Pure gold has a bright yellow color and luster traditionally considered attractive, which it maintains without oxidizing in air or water. Chemically, gold is a...
, barite
Barite
Baryte, or barite, is a mineral consisting of barium sulfate. The baryte group consists of baryte, celestine, anglesite and anhydrite. Baryte itself is generally white or colorless, and is the main source of barium...
, and dolomite
Dolomite
Dolomite is a carbonate mineral composed of calcium magnesium carbonate CaMg2. The term is also used to describe the sedimentary carbonate rock dolostone....
. Peat extraction has historically been important, especially from midland bogs, however more efficient fuels and environmental protection of bogs has reduced peat's importance to the economy. Natural gas extraction occurs in the Kinsale Gas Field and the Corrib Gas Field in the southern and western counties, where there is 19.82 bn cubic metres of proven reserves.
The construction sector, which is inherently cyclical in nature, now accounts for a significant component of Ireland's GDP. A recent downturn in residential property market sentiment has highlighted the over-exposure of the Irish economy to construction, which now presents a threat to economic growth.
While there are over 60 credit institutions incorporated in Ireland, the banking system is dominated by the Big Four - AIB Bank
Allied Irish Banks
Allied Irish Banks p.l.c. is a major commercial bank based in Ireland.AIB is one of the so called "big four" commercial banks in the state. The bank has one of the largest branch networks in Ireland; only Bank of Ireland fully rivals it. AIB offers a full range of personal and corporate banking...
, Bank of Ireland
Bank of Ireland
The Bank of Ireland is a commercial bank operation in Ireland, which is one of the 'Big Four' in both parts of the island.Historically the premier banking organisation in Ireland, the Bank occupies a unique position in Irish banking history...
, Ulster Bank
Ulster Bank
Ulster Bank is a large commercial bank, one of the Big Four in both Northern Ireland and the Republic of Ireland. The Ulster Bank Group is subdivided into two separate legal entities, Ulster Bank Limited and Ulster Bank Ireland Limited...
and National Irish Bank
National Irish Bank
National Irish Bank is a commercial bank in Ireland, one of the traditional Big Four. In December 2004 Danske Bank agreed to purchase National Irish Bank from the National Australia Bank for GB£967m ....
. There is a large Credit Union
Credit union
A credit union is a cooperative financial institution that is owned and controlled by its members and operated for the purpose of promoting thrift, providing credit at competitive rates, and providing other financial services to its members...
movement within the country which offers an alternative to the banks. The Irish Stock Exchange
Irish Stock Exchange
-History:The Irish Stock Exchange is Ireland's only stock exchange and has been in existence since 1793. It is an Irish private company limited by guarantee. It was first recognised by legislation in 1799 when the Irish Parliament passed the Stock Exchange Act...
is in Dublin, however, due to its small size, many firms also maintain listings on either the London Stock Exchange
London Stock Exchange
The London Stock Exchange is a stock exchange located in the City of London within the United Kingdom. , the Exchange had a market capitalisation of US$3.7495 trillion, making it the fourth-largest stock exchange in the world by this measurement...
or the NASDAQ
NASDAQ
The NASDAQ Stock Market, also known as the NASDAQ, is an American stock exchange. "NASDAQ" originally stood for "National Association of Securities Dealers Automated Quotations". It is the second-largest stock exchange by market capitalization in the world, after the New York Stock Exchange. As of...
. The insurance industry in Ireland is a leader in both retail markets and corporate customers in the EU, in large part due to the International Financial Services Centre
International Financial Services Centre
The International Financial Services Centre is a major financial services centre in North Wall, Dublin, Ireland. The centre employs 14,000 people and was the brainchild of an associate of businessman Dermot Desmond...
.
Welfare benefits
As of December 2007, Ireland's net unemployment benefits for long-term unemployed people across four family types (single people, lone parentsSingle parent
Single parent is a term that is mostly used to suggest that one parent has most of the day to day responsibilities in the raising of the child or children, which would categorize them as the dominant caregiver...
, single-income couples with and without children) was the third highest of the OECD countries (jointly with Iceland
Iceland
Iceland , described as the Republic of Iceland, is a Nordic and European island country in the North Atlantic Ocean, on the Mid-Atlantic Ridge. Iceland also refers to the main island of the country, which contains almost all the population and almost all the land area. The country has a population...
) after Denmark
Denmark
Denmark is a Scandinavian country in Northern Europe. The countries of Denmark and Greenland, as well as the Faroe Islands, constitute the Kingdom of Denmark . It is the southernmost of the Nordic countries, southwest of Sweden and south of Norway, and bordered to the south by Germany. Denmark...
and Switzerland
Switzerland
Switzerland name of one of the Swiss cantons. ; ; ; or ), in its full name the Swiss Confederation , is a federal republic consisting of 26 cantons, with Bern as the seat of the federal authorities. The country is situated in Western Europe,Or Central Europe depending on the definition....
. Jobseeker's Allowance
Jobseeker's Allowance
Jobseeker's Allowance is a United Kingdom benefit, colloquially known as the dole . It is a form of unemployment benefit paid by the government to people who are unemployed and seeking work. It is part of the social security benefits system and is intended to cover living expenses while the...
or Jobseeker's Benefit
Unemployment benefit
Unemployment benefits are payments made by the state or other authorized bodies to unemployed people. Benefits may be based on a compulsory para-governmental insurance system...
for a single person in Ireland is €188 per week, as of March 2011. This compares to £65.45 (~ €76.11) per week for a single person aged 25 or over in the UK.
State provided old age pensions are also relatively generous in Ireland. The maximum weekly rate for the State Pension (Contributory) is €230.30 for a single pensioner
Pensioner
In common parlance, a pensioner is a person who has retired, and now collects a pension. This is a term typically used in the United Kingdom and Australia where someone of pensionable age may also be referred to as an 'old age pensioner', or OAP. In the United States, the term retiree is more...
aged between 66 and 80 (€436.60 for a pensioner couple in the same age range). The maximum weekly rate for the State Pension (Non-Contributory) is €219 for a single pensioner aged between 66 and 80 (€363.70 for a pensioner couple in the same age range).
Wealth distribution
The percentage of the population at risk of relative poverty was 21% in 2004 - one of the highest rates in the European Union. Ireland's inequality of income distribution score on the Gini coefficientGini coefficient
The Gini coefficient is a measure of statistical dispersion developed by the Italian statistician and sociologist Corrado Gini and published in his 1912 paper "Variability and Mutability" ....
scale was 30.4 in 2000, slightly below the OECD average of 31. Sustained increases in the value of residential property during the 1990s and up to late 2006 was a key factor in the increase in personal wealth in Ireland, with Ireland ranking second only to Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
in personal wealth in 2006. However, residential property values and equities have fallen substantially since the beginning of 2007 and major declines in personal wealth are expected.
Taxation
Over the past several decades, tax revenues have fluctuated at around 30% of GDP (see graph).Currency
Before the introduction of the euro notesEuro banknotes
Euro banknotes are the banknotes of the euro, the currency of the eurozone and have been in circulation since 2002. They are issued by the national central banks of the euro area or the European Central Bank...
and coins
Euro coins
There are eight euro coin denominations, ranging from one cent to two euros . The coins first came into use in 2002. They have a common reverse, portraying a map of Europe, but each country in the eurozone has its own design on the obverse, which means that each coin has a variety of different...
in January 2002, Ireland used the Irish pound
Irish pound
The Irish pound was the currency of Ireland until 2002. Its ISO 4217 code was IEP, and the usual notation was the prefix £...
or punt. In January 1999 Ireland was one of eleven European Union member states which launched the European Single Currency, the euro
Euro
The euro is the official currency of the eurozone: 17 of the 27 member states of the European Union. It is also the currency used by the Institutions of the European Union. The eurozone consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,...
. Euro banknotes are issued in €5, €10, €20, €50, €100, €200 and €500 denominations and share the common design used across Europe, however like other countries in the eurozone, Ireland has its own unique design on one face of euro coins. The government decided on a single national design for all Irish coin denominations, which show a Celtic harp
Harp
The harp is a multi-stringed instrument which has the plane of its strings positioned perpendicularly to the soundboard. Organologically, it is in the general category of chordophones and has its own sub category . All harps have a neck, resonator and strings...
, a traditional symbol of Ireland, decorated with the year of issue and the word Éire.