Irish success?

Matt Ygelias has an interesting take on the Irish economy. For those that are unaware, Ireland has repeatedly been pronounced an austerity success story in spite of the fact that (as both Yglesias and Krugman note) Irish unemployment remains close to 14% (up from 4% prior to the Financial Crisis) and growth has been sluggish.

On top of that, even the sluggish growth Ireland has had appears to be primarily a result of “services exports” that don’t benefit the Irish economy in any tangible way—basically they are ‘intra-company accounting transactions’ that occur to take advantage of low Irish corporate tax rates, but the transactions don’t add value the Irish economy in ways that benefit the Irish.

Given Ireland’s unemployment and sluggish growth, it’s difficult to see how people continue to point to Ireland as a success story. Yglesias has the explanation:

In Spain, unemployment was already 8.5 percent in September 2007 and in November 2011 it was at 23 percent. But that was no peak. As of April it’s risen all the way to a terrifying 26.8 percent. By comparison, Ireland really is a success story. And it’s a threefold success story. Part 1 is that during boom times Ireland had much less unemployment than Spain, a testament to its higher level of education and better labor market institutions. Part 2 is the fact that Irish unemployment has in fact fallen from the peak despite sharply contractionary fiscal policy and a monetary environment that’s arguably too tight even for Germany is a testament to the flexibility of the Irish economy. Part 3 is the fact that Ireland has basically been a “good soldier” during this process. Irish people obviously aren’t happy about austerity measures. They hate them! As would anyone. But they seem more or less resigned to the situation and are making the best of it. In Spain, by contrast, austerity has provoked many iterations of protest marches, strikes, and even riots.

So, the basic story is that yeah, it’s bad in Ireland but it is worse in Spain.

Also, Ireland has embraced austerity; therefore they must be a success (rather than those pesky Spaniards that are resisting the harsh spending cuts). Yglesias finishes by making an astute comparison between Ireland and Iceland—Iceland is recovering much better, and Yglesias’ overall conclusion is that “the introduction of the single currency was, judged as an economic policy matter, a huge mistake.” Although I agree that the single currency has caused quite a few issues with the peripheral countries in Europe, I have to disagree with Yglesias on his characterization of Ireland. It’s true that on one economic indicator, unemployment, Ireland (relative to Spain) does appear to be doing a bit better. But if you dive in and look at actual economic growth, GDP in Spain is currently 6.4% below peak, while in Ireland it is 17.5% below peak. If you weight GDP by population and standard of living (purchasing power parity), Ireland is 8.5% below peak, while Spain is only 1.3% below peak. On both measures, Spain is clearly doing better than Ireland (in spite of their dramatically higher unemployment).

So, I would disagree with Yglesias slightly and make the argument that Ireland is pretty much an unmitigated economic disaster. A lot of this has to do with the common currency. A fair bit has to do with the policies pushed by the EU Economic Commission and the European Central Bank. But in no way is Ireland an economic success story.

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