Greece and Ireland: On the wings of Icarus
Greece and Ireland are small countries at the two extremes of Europe. They are also the first two eurozone members who were forced to seek the assistance of their partners and the International Monetary Fund to keep them from drowning in debt. They will surely not be the last. Comparing the two countries may allow us to draw some conclusions as to the roots of the wider problem – and allow us to think of ways of dealing with it. Greece and Ireland both have talented people whose country cannot sustain them, leading to periodic waves of emigration of their young. Their history and literature portray a rich past (the product of an eternally impoverished present) and highlight humanity’s adventure amid the clashing rocks of economic hardship and political violence (whether involving a foreign occupier or civil war). As members of the eurozone, both countries lived the dream of quick and easy riches – the Greeks by borrowing excessively, the Irish through generous benefits and the creation of a gigantic real estate bubble. Although, one country’s economy was so open, the other’s full of obstacles to enterprise. Now both have been brought to their knees by debt, they depend on their creditors to support them, and, in exchange, they have had to give up part of their sovereignty. They went from a hard but familiar reality to a borrowed paradise and back to a hard, but now unfamiliar present. Their common fall should not blind us to the different course each followed before the crash. If we are to get up again, we must know what we did right and where we strayed. For years, the Greeks envied (without emulating) the Irish and their amazing economic success – climbing from the EU’s lowest rungs to being one of the richest members. It would be a mistake to allow today’s failure to wipe out their prior achievements, because Ireland’s story contains important lessons as to what must be done and what avoided. In the 1980s, Ireland found itself in a deep economic crisis, which demanded great sacrifice from the people and much EU support for the country to recover. In the 1990s, adopting the lowest corporate tax rate in the EU (12.5 percent), Ireland managed to attract unprecedented amounts of foreign direct investment and became the headquarters of many multinational corporations. A most important factor in this success was the stability provided by the consensus reached between the government, employers’ organizations and the unions. Investors were offered an environment that did not contain surprises – without changes to tax laws, without strikes. So where did Ireland stray? Addressing parliament in Dublin last Wednesday, Prime Minister Brian Cowen had an explanation. «As a society, we became overoptimistic about our recent, seemingly spectacular economic success, and badly overshot the mark,» he said, presenting a budget with harsh spending cuts. «People became impatient with restraint,» he added. The general attitude was that «we could afford to ramp up spending, while simultaneously being a low-tax country, as if there were few hard choices to be made.» The blow that broke Ireland was its banks’ reckless competition for market share, as they fell over themselves to provide loans at a time of cheap credit (thanks to the euro) and booming property values, while the government stood back, content to reap a rich harvest in taxes. When the international financial crisis of 2008 forced down property values, the overextended banks dragged the country down, with a resultant deficit of 32 percent of GDP. Even without the banks, though, as their embattled prime minister noted, the Irish had grown accustomed to consuming more than they produced. Like the Greeks. As we see, the same lack of supervision at the government and EU level allowed both Greece and Ireland to come to the brink of catastrophe. In both cases, the temptation of easy money and the arrogance of those wielding economic and political power were the direct cause of their fall. It’s almost as if James Joyce glimpsed this all when – almost 100 years ago – he chose the name Stephen Dedalus for the protagonist of his semiautobiographical «Portrait of the Artist as a Young Man.»
