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Just how long can the Celtic Tiger roar? And what can be done to sustain the growth? Those are the kinds of questions that keep economic-development officials from Singapore to India to the Czech Republic awake at night. In July, Davy, a brokerage affiliated with the Bank of Ireland, predicted that economic growth will begin slowing in 2008. The wellrespected Economic and Social Research Institute reached a nearly identical conclusion.
The rationale for a slowdown is straightforward and persuasive: Ireland's housing boom, which has played an outsize role in the overall economic saga, cannot be sustained. The Davy report notes that more than 20 houses per 1,000 people will be built in 2006--four times the European average. "We can't go on building houses the way we do," insists John McGinley, a member of Kildare County Council, which includes Leixlip. Moreover, a government-backed savings-incentive plan, largely believed to have stimulated consumer demand, is due to expire next year.
Behind any statistical argument lurks a fear that a sustained period of growth like the one Ireland has enjoyed is a freak of economic nature. Skeptics maintain that the Celtic Tiger is suffering from a "Dutch disease"--that is, a temporary spurt comparable to Holland's discovery of offshore natural gas resources in the 1960s, which created a boom that diverted other economic activity--and then dried up. "Ireland's oil find was foreign direct investment in the late 1980s," says Danny McCoy, chief economist of the Irish Business and Employers Confederation. Others, however, believe that the tiger can stay on the prowl. "It's unduly pessimistic to project declining growth in the medium term," argues Dermot O'Brien, head of economic research at NCB Stockbrokers. He believes that native demographic growth and immigration will drive enough demand to keep the economy booming at least until 2020.
Who's right? The answer may depend on understanding how Ireland's unprecedented recovery was born. There's no single explanation; rather, government policies combined with natural strengths. One policy choice made a huge difference: in 1973, under the leadership of Prime Minister Jack Lynch, Ireland joined the European Economic Community (which later became part of the European Union). The choice was relatively uncontroversial at the time--a referendum passed (just shy of a 5-to-1 ratio)--but it was arguably the best economic decision Ireland made in the 20th century. Joining the E.U. paved the way for economic integration with Europe and the adoption of the euro in 2002. Membership led to a massive infusion of E.U. cash as well--$3 billion in farm subsidies alone last year. Conversion to the continental currency also helped bring down interest rates, which had reached upwards of 17% in the early 1980s, in part by removing revaluation as a monetary tool.