Ireland's Economy Ireland's Banking System Term Paper

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November 13, 2010); Ireland is facing severe headwinds for future growth. The depression of the real estate market and the decline in the availability of capital stock for investment through the banking system is of primary concern to policy makers. With the acceptance of the European Union bailout the demand for Ireland to incorporate austerity measures and increases in tax rates pose obturations for growth. An increase in the corporate tax rate from its level of 12.5% would seriously damage any hope of a sustainable economic recovery. According to Minister of Agriculture Simon Coveney

We are not going to commit economic suicide by raising a corporate tax rate that has served Ireland well and that will be of significant assistance to us in rebuilding our economy, which will be export-led and which will be reliant on future foreign direct investment in Ireland. (Beesley, a. March 18, 2011)

Beyond tax policy the nationalization of the banking sector poses trouble for the return of bank lending to fuel the economic recovery. Tighter government regulations on the size, scope, and direction of commercial and residential lending will prevent the necessary investments in technology and infrastructure which will provide the basis for sustainable economic growth. Policy makers need to strike a balance between regulation and growth. For Ireland the choice moving forward is clear; accept a European Union consensus which includes higher tax rates, lower growth, and austerity measures or develop a long-term growth package which utilizes the already in place tenets of: low tax rates, balanced regulation, direct foreign investment, and a focus on exports coupled with a continued growth of the service sector. Real estate will invariably bottom-out and begin to heal in a predictable and slow growth pattern. The growth model for Ireland is not a demand driven, government fueled, Keynesian response but rather a long-run supply side development of investment, low marginal tax rates, a reduction in government spending to decrease the share of debt to GDP, and the support for a strong Euro.


"Over the last two decades, Ireland achieved a remarkable economic transformation -- from being one of the poorest to one of the richest Member States in the EU when measured by per capita income" (European Commission. October 2008). This growth developed in two distinct phases; one of real growth built on sustainable investments in technology and manufacturing made possible by a flow of foreign investment and the productivity of an engaged workforce, the second the illusion of gains in the development of a speculative property and financial bubble. Ireland faces troubling headwinds in its future however, a continuation of pro-growth policies designed to: build back their capital stock, unleash the ingenuity and entrepreneurship of its citizens, and continually improve the country's economic environment for foreign investment, will return Ireland to prosperity. As the global economy pulls away from the recession countries with favorable investment and economic environments will be the first to recover. A decade ago Ireland stood at a crossroads much as the Asian tigers did in the early 1990's. "Tempted by foreign speculative capital knocking at the gate of the 'East Asian Miracle,' the economies of the region liberalized their financial sectors" (Bell, W. December 13, 2010). Following suit Ireland made the same mistake, but now in 2011 with an emphasis on returning to a real growth agenda, Ireland can restore the promise of prosperity which was available to them a decade ago.

They had an opportunity that was unique in Irish history. They had the resources to invest in the creation of a decent society, one that would be economically, socially, and environmentally sustainable. They had a population that was optimistic, self-confident, and ready for a challenge. (Bell, W. December 13, 2010)


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