IRELAND

The Republic of Ireland

Éire

COUNTRY OVERVIEW

LOCATION AND SIZE.

The Republic of Ireland constitutes 26 out of the 32 counties that make up the island of Ireland, with 6 northern counties under the jurisdiction of the United Kingdom. Situated in Western Europe, it is bordered on the east by the Irish Sea from the United Kingdom and bordered on the west by the North Atlantic Ocean. With a total area of 70,280 square kilometers (27,135 square miles) and a coastline measuring 1,448 kilometers (900 miles), the Republic of Ireland is slightly larger than the state of West Virginia. The capital city, Dublin, is located on the east coast.

POPULATION.

The population of Ireland was estimated to be 3,797,257 in 2000. There has been a steady increase in the population since 1994 (3,586,000), marking a historic turn-about in demographic trends. This is attributed to growth in the economy, a decline in previously high levels of emigration , the return of former emigrants, and an increase in immigration to the point where net migration is inward. Despite having one of the lowest population densities in Europe, Ireland's population density has reached the highest sustained level since the foundation of the Republic in 1922.

Emigration lowered population to under 3 million in the early 1980s. Birth rates declined from a high of 17.6 per 1,000 in 1985 to a low of 13.4 in 1994, but this trend has slowly been reversed, reaching 15 per 1,000 in late 1998. If the population is to meet the demands of the labor market, further increases will be necessary. Government efforts to attract further immigration and to increase the population are marred by housing shortages and service deficiencies.

At the 1996 census, 40 percent of Ireland's population was under 25, and the Irish population is still relatively young, with only 11.33 percent over the age of 65. The people are largely concentrated in urban centers, with almost one-third of the total population living in the city of Dublin and its surrounding county. Population in the other major cities and their surrounding areas is on the increase. In the sparsely populated midlands and in the western and border counties, though, population is either stagnant or declining.

OVERVIEW OF ECONOMY

An economic policy that emphasized self-sufficiency and was characterized by huge tariffs on imports to encourage indigenous growth dominated in Ireland until the late 1950s. This ideology was then abandoned in favor of a more open economic policy. Ireland's first economic boom followed this change. The failure of domestic over-spending to induce growth, along with negative global influences such as the oil crises of the 1970s, made this boom relatively short lived. The 1980s brought fast-rising inflation (up to 21 percent), unemployment close to 20 percent, emigration at unprecedented high levels (50,000 per year) and a soaring national debt .

Since the early 1990s, however, the Irish economy has produced high growth rates. It is integrated into the global trading system and, between 1994 and 1998, was the fastest growing economy in the countries of the Organization for Economic Cooperation and Development (OECD). The economy was forecast to continue expanding well in excess of any of its European Union (EU) partners during 2001 and 2002. Robust growth rates averaged 9 percent from 1995 to 1999 and some analysts predicted growth at 11 percent in 2001. Unemployment, which climbed to record levels beginning in the mid-to late 1980s, reaching 14.8 percent, fell to just 3.8 percent in 2000. Unemployment was predicted to fall below 3 percent by 2002. Living standards, measured by gross domestic product (GDP) per capita, were estimated to have caught up with the European average by late 1998.

This transformation can be credited to many forces, both domestic and global. Recent government policies have emphasized tight fiscal control alongside the creation of an environment highly attractive to enterprise, particularly international business. Policies based on "social consensus" and wage agreements negotiated by the government with business, farmers, trade unions and other social partners, have kept wages at moderate, business-friendly levels. A corporation tax of 10 percent, alongside grants to attract foreign business, has further contributed to the pro-business environment, as has the existence of a highly educated workforce.

EU regional policy has emphasized cash transfers to economically weaker and poorer member states. This is done to prepare these states to manage in a single market and currency. These transfers developed the Irish economy to a point where it could sustain growth. As an English-speaking country with access to the European market, Ireland is proving attractive as a base for international companies, particularly from the United States.

The reason behind the current economic boom is the high-tech manufacturing industry sector; in particular the foreign-owned multinational companies in this sector. Agriculture, while still remaining an important indigenous activity, is in decline. The industrial sector has seen growth rates higher than most industrial economies and accounts for 39 percent of GDP and about 80 percent of exports. It employs approximately 28 percent of the labor force . This dominance can be seen in the gap between GDP and gross national product (GNP), which was 15 percent lower in 1998. Although the service sector is smaller than that of other industrialized countries, it is nonetheless dominant and growing, accounting for 54.1 percent of GDP in 1998. Government remains heavily involved in the provision of health and transport services and, together with the private service sector, employs 63 percent of the workforce.

Successive Irish governments have maintained responsible fiscal policies over the last decade that have led to the reduction of national debt from 94.5 percent of GDP in 1993 to 56 percent of GDP in 1998. There have been concerns about the effects of current fiscal policy, with its emphasis on reducing income tax , on the high levels of inflation in the economy since late 1998. The government has argued that inflation is primarily due to external pressures such as the weak euro and high oil prices, which have caused increased consumer prices. Nonetheless, consumer price inflation peaked at 6.8 percent in the 12 months running up to June 2000, considerably higher than any other EU country.

POLITICS, GOVERNMENT, AND TAXATION

The Republic of Ireland is governed by a parliamentary democracy. Parliament consists of a Lower House, the Dáil (pronounced "doyl") and an upper house, the Seanad (pronounced "shinad"), or Senate. Together, the 2 houses and the president form the Oireachtas (pronounced "irrocktos"), or government. The Irish president, although directly elected, has relatively few formal powers and the government, elected by the Dáil from its membership, is led by the Taoiseach (pronounced "Teeshock"), or prime minister, who presides over a 15-member cabinet of ministers.

Fianna Fáil (pronounced "foil"), a highly organized, center-right party, dominates the party system, with popular support of between 35 and 45 percent in 2001. It leads a minority center-right coalition government (with the Progressive Democrats) that depends on the support of a number of independent TDs (member of parliament) in the Dáil for the 1997-2002 term. Fine Gael (pronounced "feena gale"), the second largest political party and commanding between 20 and 30 percent of the popular vote, also occupies the political center-right, though it has shifted more to the center and has developed a social-democratic and liberal agenda over the last 3 decades. Its support base is generally among the more affluent, but these class trends are not especially strong overall and many wealthy people, particularly from the business sector, support Fianna Fáil. Fine Gael led the 1995-97 "Rainbow" coalition government, thus referred to because of its inclusion of 3 parties and representation across the political spectrum. The Rainbow coalition included the Labor Party and the Democratic Left (a party further to the left), which has since merged with Labor.

Unlike practically all other European party systems, the Irish party system exhibits no strong left-right division. The 2 largest parties have not traditionally defined themselves in terms of ideology, but grew out of differences over the nationalist agenda at the time of independence. The Labor party, weak in comparison with its European counterparts, has consistently been the third largest party, commanding between 10 and 15 (some-times more) percent of support nationally, and has considerable power in a system dominated by coalitions.

A number of tribunals have been in operation since 1997-98, investigating allegations of political corruption. The allegations involve unacceptable links between politicians and big business, corrupt practices in the planning process, and inept and negligent public service on sensitive health issues from the 1970s to the 1990s. The ensuing revelations are assumed to have adversely affected Fianna Fáil's popularity, but opinion polls have proved inconclusive in measuring the amount of support the party might have lost.

A number of smaller political parties are also important in Ireland. Polls conducted in 2000-01 gave the Progressive Democrats 4 to 5 percent support, the Green Party 3 to 4 percent and Sinn Féin (pronounced "shin fane"), an all-Ireland Republican party with links to the Irish Republican Army (IRA), between 2 and 6 percent. Sinn Féin's association with the provisional IRA, which is responsible for punishment beatings in Northern Ireland and vigilante activity in the Republic, could, with its increase in popular support, present larger parties with controversial questions over coalition formation.

There is currently a broad consensus among the major political parties on how to run the economy. It is unlikely that a new government coalition would significantly alter the current pro-business economic policy.

The tax system incorporates standard elements of tax on income, goods and services, capital transfers, business profits, and property, and operates a system of social insurance contributions. Income tax has been reduced substantially, to 20 percent and 40 percent, with incomes over I£17,000 subject to the higher rate (2000 budget). A controversial individualization of income tax was introduced in the 2000 budget, with the object of encouraging more women to enter the labor force. Goods bought and sold are subject to value-added tax (VAT) at 20 percent, which is comparatively high, while luxury goods such as alcohol, tobacco, and petrol are subject to high government excise tax . Capital gains tax on profits has been reduced to 20 percent, and corporation tax, levied at between 10 percent and 28 percent, is to change to 12.5 percent across the board by 2003. Both employers and employees are subject to a social insurance tax, pay-related social insurance (PSRI), and an unusual business-unfriendly measure shifted the burden of the contributions to business in the 2001 budget. In terms of social spending, a means-tested (eligibility determined by financial status) system operates, resulting in about a third of the population receiving free medical and dental treatment. However, state medical-card holders suffer from long waiting lists for treatment, as opposed to the more than 50 percent or so of the population who have private medical insurance.

In line with EU policy, recent governments stress the importance of competition. A competition authority with enhanced powers is responsible for investigating alleged breaches of competition law in all sectors. This affects overly regulated private service providers such as taxicab companies, and it is anticipated that the restrictive pub licensing laws will be tackled next.

Government control over the economy is restricted by Ireland's membership in the EU and the euro zone, as well as by its own policy that has made Ireland one of the most open economies in the world. While the European Central Bank (ECB) controls monetary policy and largely controls interest rates, the government does retain control over fiscal policy.

INFRASTRUCTURE, POWER, AND COMMUNICATIONS

Though vastly improved during the 1990s by grants of I£6 billion in European structural funds, the Republic of Ireland's infrastructure is still struggling to cope with the country's unprecedented economic growth. Long traffic delays and below average roads linking major business centers around the country are a potential threat to continued expansion. A late 1990s report commissioned by the Irish Business and Employers Association (IBEC) estimated that a further I£14 billion would have to be spent to raise the quality of the country's infrastructure to generally accepted European levels. Ireland's share of European structural funds for 2000 to 2006 has decreased to approximately I£3 billion, but increased government spending and planned joint public-private funding of projects should make up the shortfall.

Ireland has the most car-dependent transportation system in the EU, with roads carrying 86 percent of freight traffic and 97 percent of passenger traffic. Yet full inter-city motorways are not in place, making the links between Dublin and other major cities subject to heavy traffic and delays. Economic growth and increased consumer spending has pushed up car ownership levels dramatically, which, together with increased commercial traffic on the roads, has offset the considerable improvements of the 1990s. The road network is estimated to total 87,043 kilometers (54,089 miles) of paved roads and 5,457 kilometers (3,391 miles) of unpaved roads (1999).

Long rush hours and traffic gridlock occur in the major cities and gridlock in Dublin is estimated to cost the national economy around I£1.2 billion every year. Policies aiming to attract more daily users to the public transport system might take effect over the next decade. Following much debate and deliberation, the current government has commenced the implementation of a light rail system (3 lines) to cover some important routes into the capital, most importantly a link to the airport. This will add to the "Dart," Dublin's existing, relatively efficient suburban rail service, which consists of 5 lines covering 257 kilometers (160 miles) and 56 stations.

The railway linking Dublin to 2 major cities on the island, Belfast (Northern Ireland) and Cork, has been vastly improved over the last few years, but recent reports by external consultants have highlighted the poor, even dangerous, state of much of the rest of Ireland's 1,947-kilometer (1,210-mile) railway infrastructure.

Ireland has 3 international airports—at Dublin (east), Shannon (southwest), and Cork (south)—and 6 independent regional airports. Air traffic increased dramatically during the 1990s, with the number of passengers up from 6.8 million (1992) to 12.1 million (1997), while annual air freight traffic also doubled. Inevitably, these increases have led to congestion, especially at Dublin's airport, and a major capital investment program launched by the government is nearing completion, with similar projects to follow in Cork and Shannon. Cargo traffic is similar, with increases of up to 50 percent in cargo tonnage and passenger traffic passing through the main ports over the 1990s. The government recognizes that capacity must increase if major congestion is to be avoided.

Liberalization in the telecommunications sector, completed in 1998, increased the number of providers from just 1 state-owned company to 29 fully licensed telecommunications companies, operating in residential,

corporate, and specialized data services sectors. The government hopes that liberalization and the resulting competition in the market will encourage private investment and improve the state's poorly developed telecommunications infrastructure. The mobile phone market has been dominated by competition between Eircell and Esat Digi-phone. Both have now been bought by the British giants, Vodaphone and British Telecom (BT), respectively, while a third mobile phone company, Meteor, has recently entered the market.

Energy consumption is, not surprisingly, on the increase. Total energy consumption rose from 8.5 million metric tons (9.35 million tons) in 1996 to 9.5 million metric tons (10.45 million tons) in 1997, with household use accounting for 3.6 million metric tons (3.6 million tons). Two-thirds of energy is supplied by imported coal and oil, with the remaining third supplied by indigenous peat (12 percent of the total) and natural gas. The distribution of gas, oil, peat, and electricity remains state dominated, though industrial users hope that recent liberalization of the gas and electricity markets will result in a lowering of prices.

ECONOMIC SECTORS

Strong growth (55 percent growth from 1993 to 1999) has been the recent trend in the Irish economy, but it lacks consistency across all sectors. Agriculture (forestry and fishing), as a share of total GDP, has seen a steady decline, while the fastest growth has occurred in industry, particularly high-tech industry. The expanding service sector accounted for 56 percent of GDP in 1998. Ireland's economy has remained the fastest growing economy in the EU and compares favorably with developed economies worldwide in terms of growth, output, trade volume, and employment levels.

AGRICULTURE

Ireland's mild temperature, high rainfall, and fertile land offer ideal conditions for agriculture and, despite a pattern of decline over the past 2 decades, agricultural activity remains an important employer in rural and remote regions of the country.

The drop in agricultural output from 16 percent of GDP in 1975 to just 5 percent in 1998 reflects only a relative decline when measured against the steady increase in GDP driven by other sectors. While the fall in prices of agricultural products has been sharp, the volume of output has seen only a small decrease. The industry suffers from over-capacity and falling incomes and is increasingly reliant on EU subsidies and fixed prices. The number of small farmers remains high for an industrialized country, and many small farmers take up other employment to subsidize their income. While average farm size (29.5 hectares or 73 acres) is slowly increasing, the Irish Farmer's Association asserts that farm size remains the single biggest obstacle to generating adequate income in the agricultural sector. Adjusting to EU measures to bring prices more in line with world agricultural prices seems unlikely to help the industry, while reducing high levels of pollution in the waterways to comply with EU regulations is also not expected to aid farming profitability.

Average farming incomes fell by 6.2 percent in 1997, even though productivity per individual farmer increased significantly over the last decade. On 40 percent of all farms, the annual income was only I£5,000. On a further 25 percent of farms, it rose to between I£5,000 and I£10,000. Combined employment in agriculture, forestry, and fisheries fell from 175,000 at the beginning of the 1990s to 142,000 at the end of the decade. Figures that include related food-processing industries put employment at 176,000 in 1999, representing 12 percent of all workers in employment. Some figures estimate that agriculture generates so many service sector jobs that it indirectly accounts for 350,000 jobs (23 percent of the labor force).

BEEF AND OTHER LIVESTOCK.

The most productive agricultural sector is the largely export-oriented beef and livestock industry, which accounted for 50 percent of output value in 1998. Cattle and sheep farming have, however, been hard hit by a number of crises. After EU agreements in 1999 to reduce beef prices, in February 2000, farmers were badly affected when BSE (Bovine Spongi-form Encephalopathy), or "Mad Cow" disease, resulted in a 27 percent drop in beef consumption in the key European market. In February-March 2001, the unprecedentedly severe outbreak of foot and mouth disease in herds in Britain, with pockets in Northern Ireland and France also affected, brought another enormous challenge to the industry, threatening the export markets of Ireland and all the EU countries.

Overall, output decreased during the 1990s, with the annual value of livestock falling from I£1,885 million in 1993 to I£1,761 million in 1997. This represents decreases in the overall value of cattle livestock from I£1,349 million to I£1,097 million (1993 to 1997), with the value from pigs, sheep, and lambs showing small net increases in output value.

Livestock products, the most prominent of which is milk, also suffered a general, if undramatic decline in output during the mid-1990s, from I£1,132 to I£1,113 million. Crops output, with cereals and root crops dominant, also decreased marginally—from I£3,431 to I£3,315 million—during this period. Sugar beet, wheat, and barley yielded the highest commercial value (1997), with milk, eggs, and fresh vegetables also important products.

FORESTRY AND FISHING.

Despite its reputation as a land of abundant greenery, Ireland has the lowest level of forest cover in Europe, with only 8 percent of the land under woodland, against a 25 percent average elsewhere. But this 8 percent is a considerable improvement from the 1 percent level of cover at the foundation of the state in 1922 and is the result of government reforestation programs. Current EU policy serves to encourage reforestation and the development of a timber-based agricultural sector. Reflecting this, timber output was expected (EIU estimate) to have reached 3 million square meters of timber by 2000. This would provide for an increase in the domestic market's share of local timber, as it previously imported 45 percent of its timber requirements.

Given Ireland's geographical position, fishing has been a naturally important economic activity, particularly in rural coastal areas where there are few other industries. The fishing industry has evolved to incorporate more diverse forms of activity such as fish farming, and employment rates have increased by 40 percent since 1980. Full and part-time workers together accounted for 16,000 jobs either directly or indirectly connected to the fishing industry in 1999. The value of exports increased from I£154 million in the early years of the 1990s to a peak of I£240 million in 1997. EU grants and government spending ensure that the industry will continue to expand.

INDUSTRY

The industrial sector has maintained its share in total economic activity at 39 percent of GDP throughout most of the 1980s and 1990s. This trend is unusual in developed countries and reflects strong growth. Although marking a slight slowdown from 1995 to 1998, growth in 1999 was high at 10.5 percent. Strong performance from both foreign-owned and indigenous Irish industry, primarily in the high-tech manufacturing sector, has driven the growth.

Significant reserves of zinc and lead ores, natural gas, and peat are to be found, and the latter 2 supply a third of domestic energy demand. Zinc and lead ores sustain one of the biggest zinc and lead mines in Europe and approximately 4,000 jobs. Ireland is a small country with limited natural resources, and a well-developed, open, and globally-integrated industrial economic policy is therefore essential to economic health.

HIGH-TECH MANUFACTURING.

There are more than 1,000 foreign-owned companies operating in Ireland, mostly, though not all, in the high-tech manufacturing sector. Foreign-owned manufacturing accounts for more than half of the country's total manufacturing output. In 1998, foreign companies produced more than two-thirds of export goods and employed around 45 percent of the manufacturing sector's workforce, or 28 percent (468,800) of the total workforce. Most foreign-owned manufacturing is concentrated in high-tech sectors such as chemical production, metals, electrical engineering, and computer hardware.

Between 1993 and 1997, output in metals and engineering increased by 96 percent and employment by 49 percent. Leading metal output is the manufacture of agricultural and transport machinery. In the chemicals sector, output increased by 116 percent and employment by 38 percent. Both sectors continue to enjoy high productivity.

Performance in the indigenous high-tech sector has also been impressive. The sector's growth in volume of output increased by 37 percent from 1987 to 1995, contributing to a 113 percent increase overall (including foreign-owned). World-class manufacturing and management standards have developed, partly encouraged by the productive foreign-owned companies and by growing links between foreign-owned and indigenous sectors. An increasing percentage of inputs purchased by foreign-owned industry for production are supplied by indigenous Irish industry. Total expenditure of foreign companies in the Irish economy has reached I£6.9 billion, up from I£2.9 billion in 1990. By 1999, this economically healthy situation had brought an unprecedented 30,000 worker increase in employment by Irish-owned manufacturing firms since 1992.

Also well represented in this high-tech sector are the Industrial Development Authority (IDA)-targeted sectors of the pharmaceutical and computer software industries. The IDA is a government body charged with the task of attracting foreign investment and is part of an umbrella organization called Enterprise Ireland. The concentration of high-tech industries they have encouraged has created a clustering effect that facilitates self-sustaining growth.

TEXTILES, CLOTHING, AND FOOTWEAR.

Dominated by indigenous industry, the labor-intensive textile, clothing, and footwear sectors registered no significant growth during the 1990s into the 2000s. They have suffered as a result of competition from cheaper foreign imports. Textile production in Ireland remained stagnant during the late 1990s, and employment in the sector fell by approximately 20 percent. Clothing and footwear output fell by almost 20 percent between 1993 and 1997 and has remained at that level.

FOOD, DRINK, AND TOBACCO.

Food, drink, and tobacco production recorded the strongest growth in the traditional indigenous manufacturing sector, with production output, which is aimed at both domestic and export markets, increasing by 6.1 percent in 1997. Providing the backbone for the food industry is the production of beef, milk, eggs, fresh vegetables, barley, sugar-beets, and wheat.

CONSTRUCTION.

A combination of increased business investment, infrastructure development and an acute housing shortage resulted in an increase in the value of construction output from I£13.7 billion in 1993 to I£16.1 billion, or 14.2 percent of GDP in 1996. In 1998, the bulk of construction was directed at residential buildings. Quarried stone exists as an important indigenous supply for the construction industry. Conditions ensured that this boom continued into 2001, but it is threatened by a shortage of labor and the accompanying effect of increasing wage demands.

The open-market economic policies adopted by successive Irish governments since the late 1980s can, in large part, explain the rapid expansion of the industrial sector, particularly the high-tech industrial sector. Foreign direct investment has been attracted by a number of factors, including a carefully built, business-friendly environment, a relatively inexpensive but highly skilled labor force, access to the EU market, and a range of incentives offered by the Irish government. Economic policy is currently establishing new priorities aimed at attracting industry to the poorer regions of the country, strengthening the roots of foreign-owned industry, and encouraging research and development programs.

SERVICES

Services accounted for approximately 63 percent of employment and 54.1 percent of GDP in 1999. Banking and finance and retailing and tourism dominate the private services sector, with software engineering and business consulting services growing in importance. State-owned industries dominate the provision of education, health, distribution, transport, and communication services, accounting for 18 percent of GDP in 1997. Private service providers are slowly entering these markets.

FINANCIAL SERVICES.

Availability of branch banking is dominated by 4 main clearing banks—Bank of Ireland, Allied Irish Banks, Ulster Bank, and National Irish Bank. Since the early 1990s, banks and building societies have become increasingly involved in the providing of financial services, and total employment provided by these institutions increased from 25,200 in 1994 to just under 30,000 in 1998. A scheme introduced in 1987 created incentives to make Ireland an attractive base for foreign financial institutions. A particular incentive was the setting of corporation taxes at a low 10 percent. More than 300 banks, mostly North American and European, are established in the Irish Financial Services Center (IFSC) in Dublin, offering specialized services such as investment banking, fund management, capital markets, leasing, and re-insurance. The IFSC has created direct employment for between 5,000 and 7,000 people, as well as a considerable proportion of indirect employment connected with Dublin's concentration of banks.

TOURISM.

The country's famously green and beautiful landscape, its fine beaches, a culture of small, atmospheric, and sociable pubs, and the friendliness of its people attract many tourists. Recent tourist expansion has largely resulted from Dublin's elevation to a very popular weekend-break destination, coupled with the government tourist board's overseas promotion programs, which highlight the country's attractions for fishing, walking, and golfing enthusiasts. Total revenue from tourism reached I£2.8 billion—more than 5.7 percent of GDP—in 1997. This dropped slightly in 1999 (I£2.5 billion), but two-thirds of that year's revenue was generated by the arrival of more than 6 million overseas visitors. At the end of the 1990s, at least 120,000 jobs were estimated to depend on tourism. The biggest threat to the tourist industry is the poor quality of services. These are the result of a shortage of skilled labor, as well as increasing industrial unrest that periodically causes transportation disruptions and brings traffic chaos. Workers in the tourist industry have tended to be worse off than those in other sectors, but the I£4.50 per hour minimum wage introduced in 2000 stood to eradicate the worst cases of under-payment.

RETAIL.

Economic expansion has facilitated increased diversification in the indigenous retailing industry. With consumer spending high, retail sales expanded by 53 percent in real value terms in 1997 and by 32 percent in volume terms. The surge in the growth of the retailing sector has attracted a large number of groups from the United Kingdom (UK), which have brought competition that has helped to control consumer price inflation. The volume of retail sales increased by 14 percent in the first quarter of 2000, with the purchase of new cars in the first half of that year up 42.9 percent.

INTERNATIONAL TRADE

Ireland has achieved the highest trade surplus relative to GDP in the EU and is in the top 20 exporting countries in the world. In 1999, the total value of the country's exports recorded a huge surplus, reaching I£44.8 billion, against imports of I£20.63 billion. The balance of trade between exports and imports continued the strong upward trend from I£13.7 billion (25 percent of GDP) in 1998 to I£24.17 billion in 1999. Figures from the first half of 2000 indicated a further increase. However, despite a robust 24 percent growth in export rates in 2000, trends indicated that import growth rates in response to high consumer demand would exceed export growth rates in 2000-01, thus threatening the surplus in the long run. The EU (including the UK) remains Ireland's most important export market. In 1998, export revenues from the EU accounted for 67 percent (I£30.27 billion) of total exports, with the UK contributing almost I£10 billion, or 22 percent of the total. Germany (14.6 percent), France, Italy, and the Netherlands are the other key European destinations, while the United States accounted for I£6.14 billion (13.7 percent) in 1998. Given the weak euro and the presence of many U.S. multi-nationals in Ireland, there are indications that the United States is set to become Ireland's biggest export market. Exports to U.S. markets increased by 54 percent to I£6.8 billion in the first 6 months of 2000. Exports to the UK, a non-euro zone, also increased by 22 percent during this period to I£6.9 billion. Ireland is a major center of computer manufacture, with

U.S.-owned corporations such as Dell conducting operations there. The high-tech sectors recorded Ireland's largest export increases in 2000, with computer equipment leading the field at I£8.1 billion. The export of organic chemicals was valued at I£7.3 billion, and electronic machinery at I£2.9 billion. Chemicals, transport equipment, and machinery (including computers) accounted for 80 percent of the increase in exports between 1993 and 1997. While foreign multinationals dominate these sectors, there are positive signs of increasing domestic production in high tech manufacturing industries, such as the production of chemicals, software development, optical equipment, and electronic equipment. The production of electronic equipment and optical equipment supplied 9.2 percent of domestic exports in 1997. However, exports represented only 34 percent of domestic manufacture, while up to 90 percent of foreign-owned company output was exported. In 1997, food and livestock remained the fourth largest export commodities, with food, drink, and tobacco together accounting for an important, though declining, percentage of indigenous exports (53.9 percent, down from 61.9 percent in 1991). Fuel, lubricants, and crude materials also remain important.

The value of imports has increased rapidly, from I£13.1 billion in 1998 to I£34.66 billion in 1999. Their value for the first 6 months of 2000 was at I£20.7 billion, recording a 25 percent increase. Once again, the high-tech sector dominated, with imports of computer equipment increasing by 28 percent and manufacturing industry inputs by 26 percent. Imports of road vehicles also increased dramatically during this period. Despite the weak euro, the UK and the United States remain Ireland's largest sources of imports, both supplying goods in the first half of 2000, showing an increase in volume of 20 percent. Machinery and transport equipment dominated the volume of imports and accounted for I£15.7 billion in 1998, with chemicals and miscellaneous manufacturing goods accounting for I£3.4 billion each. Food and live animals accounted for the next largest share in total import value at I£1.8 billion in 1998. Live animals are both imported and exported. A factor distinguishing

Ireland from its 10 euro-zone partners is its relatively low volume of trade within the euro zone—20 percent of imports and 45 percent of exports in 1998. Current trends do not predict a rapid change in this pattern.

MONEY

Ireland severed its links with the British pound sterling in 1979 and relinquished control over its monetary policy to the European Central Bank (ECB) in 1999. Consequently, the government is no longer free to use exchange rates as part of economic and trade policy. The relationship of the Irish pound to the sterling and the U.S. dollar is determined by their relationship to the euro, which itself has been consistently weak since its launch in January 1999. Higher interest rates have been introduced by the ECB to help the euro, but they would need to be considerably higher to curb Irish domestic spending and demand. A downturn in the U.S. economy could, perhaps, result in a strengthening of the euro. This would reduce the costs of imports and help curb inflation, but would at the same time decrease the value of exports. The Irish Stock Exchange (ISE) separated from the international stock exchange of the United Kingdom and the Republic of Ireland in 1995. Since then, in keeping with global trends, the ISE has grown rapidly, with market capitalization increasing from I£7.4 billion in 1992 to I£66.8 billion in 1998, and 81 companies listed in 2001. It appears, however, to be too small to attract significant levels of venture capital, and Irish technology companies tend to look to the NASDAQ or the EASDAQ (proposed Europe equivalent) for this reason. With this coordination of stock exchanges across Europe, investor participation in Irish stocks may increase.

POVERTY AND WEALTH

Unprecedented growth in the Irish economy during the late 1990s saw living standards in terms of per capita GDP reach the EU average for the first time in 1998. However, rapid growth does not automatically translate

into a better quality of life, and Ireland is by no means immune to the risk in all industrial societies: that of creating a society where the rich get richer and the poor stay poor.

Inequality in Ireland falls generally into 2 categories. The first is essentially that of poverty traditionally created by unemployment. Despite almost full employment , pockets of deprivation characterized by long-term unemployment, high dropout rates from education, and a dependency culture, prevail. These disadvantaged groups, frequently plagued by social ills such as the drug-culture, suffer markedly from the considerable increase in the cost of living. To relieve deprivation of this nature requires a sustained effort at introducing more comprehensive social policies. In 2000, the Irish government spent only 16 percent of GDP on social welfare compared to the EU average of 28 percent.

The second category of poverty, arising from the disparity of income among the employed, affects a larger number of households. Comparative studies published in Brian Nolan, Chris Whelan, and P.J. O'Connell's Bust to Boom, reveal Ireland, along with the UK and Portugal, to have a high rate of relative income poverty compared to other EU member states. While there were improvements in income earned by the unskilled, skilled, highly

skilled, and educated employees alike, the overall trend from 1987 to 1997 brought more opportunities and higher wage increases for the latter 2 groups. This trend is more acute in Ireland than in other European states. The ESRI (Economic and Social Research Institute) points out that while the fortunes of wealthiest 10 percent of the employed population increased rapidly between 1987 and 1997, the top 5 percent rose even more rapidly. The only positive aspect of income distribution trends was that while the bottom, or poorest, 25 percent appeared to fall away from the average income, the bottom 10 percent did not, indicating that the very poor are not actually getting poorer. One further positive aspect is the increase in gender equality, with women moving to take advantage of increased employment opportunities. Women are establishing themselves as fundamental members of the labor force and improving their average take-home pay to 85 percent of that earned by their male counterparts.

However, trends in general income disparity are worsened by the crippling house prices. These either prevent many young people on average incomes from buying homes or leaves them with huge mortgage payments. Rents have spiraled due to shortages in the housing market. Exclusively located houses in Dublin have been sold for over I£6 million and, while this is not the norm, an adequate house with easy access to Dublin's city center costs between I£150,000 and I£500,000, having cost perhaps between I£30,000 and I£80,000 at the end of the 1980s.

The government does provide safety nets for those in need, granting free medical and dental care on the basis of means testing. Social welfare payments are available to the unemployed, but only to those who can provide an address, and there is some government-provided social, or corporation, housing. This scheme involves making low-rent housing available to the less well off, along with a tenant's long-term option of buying the government out. However, the service has suffered from the housing shortages, which show no signs of letting up (2001), and waiting lists are up to 18 months long.

WORKING CONDITIONS

The falling unemployment of the 1990s has accelerated to the extent that the key issue in 2001 is a shortage of skilled and unskilled labor. The labor force increased from 1,650,100 in early 1999 to 1,745,600 in mid-2000, with 1,670,700 in employment (mid-2000). In 1999 and 2000, surveys carried out by the Small Firms Association indicated that 91 percent of surveyed members were experiencing difficulties recruiting staff, particularly at the unskilled level. The labor market increased by 6.2 percent (96,000) in 1999, and the number of long-term unemployed decreased to just 1.7 percent of the workforce. There is a risk that this shrinkage in the volume of available labor will further fuel demands for wage increases.

Social partnership agreements over the last decade have kept wages moderate and generally lower than in other EU states. There is an increasingly widespread consensus on the part of workers, particularly in the public sector , that the fruits of economic growth have not been distributed, let alone distributed evenly. It is feared that demands for increased pay may undermine growth by fuelling inflation, thus pushing up the cost of living for individuals and of wages for business, both foreign and domestic owned.

The input of trade unions into economic policy-making was formalized with the introduction of national wage agreements in 1989. The umbrella body, the Irish Congress of Trade Unions, incorporates 46 unions, with a total membership of 523,700 (2000). According to the largest union, the Services, Industrial, Professional and Technical Union (SIPTU), membership increased by 60,000 to more than 200,000 in 2000. However, many multinationals do not permit union membership. Despite overall improvements in wage and employment levels, the current industrial climate is at its worst this decade. Strikes are a more regular feature across the public sector, with nurses, the Garda (police), and teachers demanding increases of up to 40 percent. The most recent wage agreement—the Programme for Prosperity and Fairness ness (PPF)—has proved almost impossible to implement, since the agreed annual 5 percent pay increases are no longer considered sufficient by unions; they argue that the cost of living has increased by more and, with inflation having peaked at almost 7 percent in November 2000, they appear to have a case.

Hourly rates of pay have increased significantly across all sectors. According to the government's Central Statistics Office, the average industrial wage of I£274.37 for a 40.5-hour week in 1996 rose to I£283.53 in 1997 and I£295.20 in 1998. In 1999, employees in private firms had higher average wage figures. Skilled workers earned I£461.86 for a 45.6-hour week and the unskilled and semi-skilled were paid I£346.55 for a 46.8-hour week. As indicated above, income differentials—the difference between income levels across all sectors from the highest to the lowest—are higher than in other EU countries.

COUNTRY HISTORY AND ECONOMIC DEVELOPMENT

1800. British rule over Ireland, present since the 12th century, is extended to the entire country by the 17th and 18th centuries and further centralized with the Act of Union in 1800 (whereby no parliament sat in Dublin anymore).

1870s. Strong national movement emerges in Ireland. The national political movement in favor of "home rule" succeeds in incorporating both members of the Anglo-Irish aristocracy and peasant famers who seek land reform. But resistance on the part of conservative British governments and the strong will of the Protestant population of the northern province—Ulster—to remain in the union delays home rule.

1914-18. A more radical stream of nationalism begins.

1919-21. Guerrilla-style war for independence ensues. The Unionist population of Northern Ireland remains adamant that no granting of either home rule or independence to the island should include them.

1922. The Anglo-Irish treaty gives 26 of the 32 counties of Ireland independence from the United Kingdom with some symbolic restrictions, such as the retention of the crown as head of state. The remaining 6 counties in the north of the island remain part of the UK.

1923. Those for and against the treaty fight a civil war over the spoils of government and some over the retention of symbolic links with Britain, which ends in the capitulation of the anti-treaty forces, who then form the political party Fianna Fáil in 1926.

1925. Partition of the island into Eire and Northern Island is informally made permanent.

1938. More than a decade of politically provoked and disastrous "economic war" with Britain ends.

1940. Ireland declares itself neutral in World War II.

1949. Although informally a republic since 1937, Ireland is formally declared a republic.

1950s. Emigration increases rapidly, and rural poverty becomes widespread.

1960s. The inward looking, tariff-centered economic policies are rejected in favor of an open policy, but the state still plays a huge role in the economy.

1970s. High government spending increases the national debt to unsustainable levels and sparks off high inflation. The oil crisis of 1979 also hits the country hard.

1973. Ireland joins the European Economic Community, along with Britain and Denmark.

1980s. High inflation and unemployment levels alongside income tax that reach over 65 percent.

1987. Ireland endorses the Single European Act, which establishes the common European market. The first social partnership agreements of the 1980s negotiate a plan for national economic recovery.

1990s. Tighter fiscal policies, trade and enterprise-friendly economic policies, and social partnership agreements, alongside other factors such as the long-term benefits of EU transfers, facilitate a turnaround in the economic fortunes of the country.

1991. EU countries sign the Maastricht Treaty, which formalizes the plan for European Monetary Union and agrees on the ground rules for entry into EMU.

1994-98. Following the paramilitary cease-fire in Northern Ireland and long negotiations, a peace process results in political agreements between Britain, Ireland, and Northern Ireland.

1995-96. The economy shows strong growth and a significant increase in employment opportunities.

1998. Ireland endorses the Amsterdam Treaty, which extends EU co-ordination of social and security policy and enlargement.

1999. EMU is introduced and the European Central Bank takes over monetary powers in Ireland.

FUTURE TRENDS

For most of the latter half of the 20th century, Irish policy makers focused on the challenge of how to instigate sustainable economic growth that would serve to reduce high unemployment and emigration levels and to increase standards of living to the European level. In the 21st century, the key challenge is to implement a policy mix that sustains the benefits of growth while dealing with the key interlinked threats posed by inflation and acute labor market shortages. In 2001, rising inflation has seen the cost of living increase considerably, and this, alongside more demand than supply in the labor market, puts strong upward pressure on wages.

Dealing with inflation and labor market shortages is complicated by the extent to which external forces affect Ireland's economy, which is a regional, export-oriented economy within a monetary union. For example, the health of the euro and trends in global oil prices will either help or hinder the curbing of inflation. Lower oil prices and a stronger euro would reduce the cost of imports and, thus, inflation. Another important external force is the slow-down in the U.S. economy (2001). This could decrease the United States' domestic demand for imports, at the same time decreasing multi-national companies' investment in the Irish market, thus putting trade volume, employment, and growth at risk. In turn, spiraling inflation could result as job losses cause people to struggle to pay mortgages and the high levels of credit that have been the trend throughout the 1990s and beyond.

While there are differing opinions as to which policies are most effective to curb inflation and thus reduce the upward pressure on wages, most commentators agree that a flexible fiscal policy, in particular flexible wages (using wage agreements), is vital if both are to be avoided. Flexibility is necessary because of the dual and uncertain nature of external challenges to economic success.

Different external factors call for different reactions. The immediate problem facing the government in 2001 is the threat to social partnership policy-making posed by the increasing demands of unions for higher wage agreements. Higher wages and a break in the partnership would threaten the competitiveness of the Irish labor market, which remains relatively cheap compared to the rest of Europe. But competitiveness is also at risk as a result of labor market shortages.

It is likely that moderate wage increases to maintain social consensus (partnership agreements) are required alongside policies to encourage immigration (to increase the labor market supply) and policies to encourage savings (to reduce the threat of inflation). However, different policy responses would be required should the U.S. slowdown reach the point where foreign companies pull out, thus reducing employment. Attempts have been made to prepare for this scenario; the IDA has put more emphasis on health care and e-commerce companies and on research and development functions to deepen the roots of foreign investment, thus lessening the risk of an exodus.

A healthy future economy largely depends on how government responds to uncertain threats, and it would appear that the adoption of a flexible approach is vital. This is in turn a prerequisite for improving the quality of life and diverting a percentage of expenditure to programs designed to narrow the disparities in individual prosperity.

DEPENDENCIES

Ireland has no territories or colonies.

BIBLIOGRAPHY

Duffy, David, John Fitzgerald, Kieran Kennedy, and Diarmaid Smyth. ESRI Quarterly Economic Commentary. Dublin: Economic and Social Research Institute, December 1999.

Economist Intelligence Unit. Country Profile: Ireland. London: Economist Intelligence Unit, 2001.

Economist Intelligence Unit. Country Report: Ireland June 2000. London: EIU, 2000.

Economist Intelligence Unit. Country Report: Ireland November 2000. London: EIU, 2000.

Irish Business and Employers Association (IBEC). "Quarterly Economic Trends." Dublin: IBEC Statements, December 2000.

Irish Business and Employers Association (IBEC). "Economy Not All Boom." Dublin: IBEC Statements, January 2001.

Irish Farmer's Association. Structure and Competitiveness in Irish Agriculture. Dublin: IFA, July 1999.

Nolan, Brian, P.J. O'Connell, and C. Whelan. Bust to Boom: The Irish Experience of Growth and Inequality. Dublin: IPA and ERSI, 2000.

Nolan, Brian, and Bertrand Maitre. "Income Inequality." Bust to Boom: The Irish Experience of Growth and Inequality. Dublin: IPA and ERSI, 2000.

O'Hagan. The Economy of Ireland. 6th edition. Dublin: IPA, 2000.

Small Firms Association. End of Year Statement. Dublin: SFA, 2000.

Results of Pay Survey. Dublin: SFA, January 2001.

U.S. Central Intelligence Agency. CIA World FactBook 2000. <http:www.odci.gov/cia/publications/factbook/index.html>. Accessed September 2001.

—Catherine Lynch

Eoin O'Malley

CAPITAL:

Dublin.

MONETARY UNIT:

Irish Pound (I£). One Irish pound equals 100 pence (p). There are notes of 1, 2, 5, 10, 20, 50, and 100 pounds. There are 1, 2, 5, 10, 20, and 50 pence coins. Ireland is part of the European Monetary Union (EMU) implemented on paper in January 1999. From 1 January 2002, the pound will be phased out with the introduction of the euro. The euro has been set at 0.787564 Irish pence, with I£ equaling approximately 1.21 euros. There are 100 cents in the euro, which is denominated in notes of 5, 10, 20, 50, 100, 200, and 500 euros, and coins of 1 and 2 euros and 1, 2, 5, 10, 20, and 50 cents.

CHIEF EXPORTS:

Machinery and equipment, computers (hardware and software), chemicals, pharmaceuticals, live animals, animal products.

CHIEF IMPORTS:

Data processing equipment, other machinery and equipment, chemicals, petroleum and petroleum products, textiles, clothing.

GROSS DOMESTIC PRODUCT:

US$83.6 billion (2000 est.).

BALANCE OF TRADE:

Exports: US$73.8 billion (2000 est.). Imports: US$46.1 billion (2000 est.). [CIA World Factbook indicates exports to be US$66 billion (1999 est.) and imports to be US$44 billion (1999 est.).]