Achieving the ‘Irish miracle’ in Greece requires risks and strong consensus

Could Greece follow the growth footsteps of the Republic of Ireland and transform its economy into a European tiger, as Dublin has managed to do in the last couple of decades? The Irish example, envied by the present and past governments in Athens, will be the focus of an event organized today by EFG Eurobank at 5.30 p.m. at the King George Hotel in Athens, with the participation of two Irish experts (Pat MacArdle and Dan Flinter) and another two from Greece (Eleni Louri and Heracles Polemarchakis). Twenty years ago, Ireland was in a much worse financial state than Greece. Its living standard per capita was 15 percent lower than the Greek one, unemployment was at 16.8 percent against 7 percent in Greece, while its government debt came to 101.7 percent of the gross domestic product (GDP) compared with 53.6 percent in Greece. Today, both countries have registered significant progress. They have witnessed an influx, instead of an outpouring, of economic refugees. Yet, between them, the picture has been reversed: Living standards in Ireland are 37 percent higher than in Greece; unemployment in Ireland has dropped to 4.5 percent while in Greece it has risen to 10.5 percent. Dublin’s public debt fell to 30 percent against a rise to 110 percent in this country. Generally, Ireland has in the last 20 years turned into a strong international player in the sectors of new economy, computers and pharmaceuticals. It is second in the world in information technology systems and software, behind the US. It has wooed a variety of multinationals, attracting highly trained human resources. Still, a large portion of domestic production belongs to foreigners, making the national income 20 percent smaller than the value of the GDP. In turn, only in the last decade has Greece managed to make significant steps of convergence with the EU-15 average living standard, on its way to joining the eurozone. From the level of 75 percent of the 15 members’ living standard in 1985, Greece fell to 67 percent in 1995 but then rebounded, reaching 76 percent this year. Today’s big question, however, is the viability of last decade’s progress. Some pessimists suggest that a major part of growth is due to the EU-subsidized Community Support Framework investment programs, a tap which will soon run dry for Greece, as well as on households’ borrowing that is also nearing saturation point. The same pessimists further argue that, unlike Ireland, the educational system in this country is problematic while the competitiveness of enterprises is sliding. On the other hand, there is the optimistic viewpoint, as even the International Monetary Fund, which is traditionally conservative in its forecasts, estimates that the potential GDP will increase in the coming years by 3.5 percent, although this rate will gradually diminish as population ages. Greece today is in need of a new growth policy compass with long-term targets, working as a reference point for the expectations of entrepreneurs and employees. No development pattern of another country can be copied or transplanted. Greece must invest in its own comparative advantages and simply avoid the mistakes of the past – or any other country’s past. Three crucial aspects For the Irish experience to become useful, we need to dig deep into its causes. We can identify three aspects that appear to have played a vital role. The first one refers to the degree of acceptance of the economic measures taken, the second to the risk which Dublin took in its tax policy and its entrepreneurship boost, while the third is Ireland’s comparative advantage, its human resources, in which it has invested. In 1987 Ireland went through an economic crisis which strongly affected its technocrats and citizens. But the crisis induced unions, companies and political parties to converge toward the impressive reforms attempted since 1988, with three-year programs of «social commitments» which concerned three general issues: the macroeconomic environment, distribution of income and structural reforms. The unions consented to salary reduction. Also, the government promised not only to cut tax on corporate profits and incentives for foreign capital influx, but also to cut income tax, reduce weekly working hours and raise the minimum wage while cutting spending. It is not clear whether a similar policy of social commitments would easily apply to today’s Greece. The starting point may not be a financial crisis, but the Irish experience shows the multiplying benefits of the broader possible consent on the government’s financial measures and the importance of cohesive economic strategy. The readjustment of tax brackets and the general effort to woo foreign investors were a major innovation as well as a risk. They proved successful as Ireland dared make a drastic change that made it stand out from its rivals. It also succeeded thanks to its young, well-trained and English-speaking human resource workers, as well as its relationship with the diaspora and its location for US investors. Greece must take its own risk, as following the pattern set by others would bring no innovation, which does not help competitiveness. Are we ready to invest in something like attracting a million northern Europeans to live here for at least half the year? Can we become an electronic commerce center for the broader region? Does the state intend to actively pursue our economic presence in neighboring countries? (1) Ghikas Hardouvelis is a professor of financing at the University of Piraeus and a consultant at EFG Eurobank.