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Skilled Irish lose jobs, find alternative downunder.
Apartments in Ireland’s tallest building, the 150-million euro, 17-story tower Elysian, cost 1.8 million euros ($US2.56 million). For that, you could get a three-bedroom duplex penthouse with a black-lacquer kitchen, Porsche taps and a panoramic view of Cork. Very nice. But because of the Global Financial Crisis (GFC) 80% of the Elysian’s 211 apartments were unsold in late April. About half the office and store units in the project also stand empty.
“It’s not the product, it’s just the times we’re in,” says developer Michael O’Flynn, who has slashed his workforce to about 400 employees, down from around 1,200 three years ago.
Ireland’s rapid shift from boom to bust stands out as an example of what can happen when government officials fail to slow an economy overheating on property speculation.
The country’s GDP, expanded by an average of more than 9 percent a year from 1997 to 2001 — faster than any other European Union country. It will shrink about 12 percent from 2008 through 2010, according to the Economic and Social Research Institute in Dublin, the worst performance by an industrialised nation since the Great Depression, the group said on April 29.
The government is cutting public employee wages and hiking taxes to reassure continental neighbours that the country won’t need an Iceland-style, bailout.
In this Celtic Tiger’s glory days of the 1990s, companies such as Pfizer Inc. and Microsoft Corp. fuelled growth in this country, attracted by a corporation tax rate that fell to 12.5 percent by 2003, then the EU’s lowest for business. The surging economy lured back thousands of Irish citizens who fled the country in the 1980s. Unemployment, which exceeded 15 percent in the mid-1980s, plunged to 3.9 percent by 2001.
But now, things have shifted into reverse, with skilled Irish trades people and professionals seeking opportunities in such countries as Australia.
For, while the Irish economy came crashing down, Australia has hung in there, actually managing to grow marginally during the worst period by +0.4%, a stark contrast with Irish shrinkage of 8% this year, on top of a 2.3% contraction in 2008.
Ireland’s budget deficit is projected to soar to 10.8 percent of GDP in 2009, more than three times the EU limit. A new state agency will buy as much as 90 billion euros in real estate loans from the banks, which may make the government the country’s biggest landlord.
“The recession in Ireland is going to be longer, deeper and more painful than in any other European country,” says Michael O’Leary, chief executive officer of Dublin-based Ryanair Holdings Plc, Europe’s largest discount airline.
In January, Cowen’s government seized control of Dublin-based Anglo Irish Bank Corp., once the country’s No. 3 bank, which had some 80 percent of its loan book in the hands of commercial developers, according to Dublin-based Goodbody Stockbrokers. Anglo’s lending rose to 73 billion euros by September 2008 from 18 billion euros in 2003.
Ireland will spend 13.9% of its GDP on a bailout program for lenders including Allied Irish Banks Plc, Bank of Ireland Plc and Anglo Irish, the IMF forecast. The rescue will be paid for partly by state pension reserves.
From July 1998 to January 1999, when Ireland joined the euro zone, its benchmark rate fell by more than half to 3 percent, as the European Central Bank assumed authority for the country’s borrowing terms. Falling under the ECB’s purview robbed Dublin of the ability to control its own money supply, says Charlie McCreevy, finance minister from 1997 to 2004.
“If we’d had control over our interest rates at that time, they would have been higher,” says McCreevy, 59, now the EU’s commissioner for financial services.
In 1973, Fianna Fail Prime Minister Jack Lynch led the country into the European Economic Community, as the EU was then known. The financial benefits of membership were overwhelming: From 1973 to 2008, Ireland received a total of 62 billion euros from Europe, of which almost 44 billion euros went into the pockets of the country’s farmers.
But, even with Europe’s largesse, Ireland’s economy grew at an average of just 1.7 percent from 1980 to 1986, and unemployment averaged 16 percent from 1983 to 1988, which drove 228,000 people out of the country at the end of the decade. To help create jobs, the government’s Industrial Development Authority began targeting foreign investors. The IDA marketed the country’s educated, English-speaking population as “The Young Europeans,” particularly in the U.S.
Such efforts lured overseas companies to establish manufacturing operations in Ireland, including Norwood, Massachusetts-based computer-hardware maker Analog Devices Inc. and Toronto-based telecom equipment company Nortel Networks Corp.
From the late 1980s, Ireland set out to establish itself as a global financial hub by creating the International Financial Services Centre on the northern banks of Dublin’s River Liffey. The first tenants, including New York-based Citigroup Inc., enjoyed a 10 percent corporate tax rate.
Ireland’s favourable treatment of some companies eventually ran afoul of EU regulations. In 2003, the government complied with continental competition rules and standardised the tax rate for all companies at 12.5 percent.
“Ireland is not a conventional tax haven like Switzerland or the Channel Islands,” says John Christensen, international co-ordinator in London for the Tax Justice Network. “It doesn’t have banking secrecy, so it’s not a major centre for private banking involving trusts and similar offshore investment vehicles for tax evasion.”
Nevertheless, Dublin became a destination for aggressive profit-maximising strategies that went badly wrong. Germany’s state-owned banks, for example, set up investment units in Dublin to benefit from the low tax rate and proximity to investors in London. Sachsen LB’s Dublin operation, Sachsen LB Europe Plc, was established in 1999 and loaded up on toxic assets, including sub-prime mortgages, amounting to more than 27 times the bank’s equity during the next nine years.
Former Prime Minister, Bernie Ahern, lauds Ireland’s success in marketing itself abroad.
“Business guys, particularly multinationals, knew we were listening to them,” he says. “People were saying: ‘This crowd of Paddies, they’re up to this. They want to get high growth, keep taxes low.’”
Redevelopment efforts created one of Europe’s most generous property tax regimes. Beginning in 1992, for example, the government allowed investors in rundown neighbourhoods to write off the purchase price of apartments against other rental income. Financial services, construction and exports nurtured the Celtic Tiger. In 1995, gross domestic output per capita averaged about $17,200, 12% below the average in a survey of countries in the Organisation for Economic Co-operation and Development. Eight years later, it was $33,000, 22% above average.
The combination of easy credit, increased wages and tax incentives for real estate spurred the Republic’s property bubble. In 2007, builders in Ireland completed about 18 housing units per 1,000 people, edging Spain as Europe’s construction hot spot, according to Euroconstruct, a building industry research group.
Total bank lending surged to 392.8 billion euros in the four years to 2008. The average person was 37,000 euros in debt, the highest level in the euro zone, according to government figures. In 2003, in the Cork suburb of Ballincollig, developer O’Flynn bought a site for 40 million euros. He built a shopping mall surrounded by two curving apartment buildings. In 2009, visitors were confronted by a deserted plaza with vacancy signs on the shop fronts.
Following this boom, average house prices plunged 19% from their January ‘07 peak, according to Irish Life & Permanent Plc.
On May 4, 2009, President Barack Obama said he planned to raise about $190 billion during the next 10 years partly by curtailing the ability of US-based multinationals to write off the costs of overseas units against domestic tax liabilities.
“Any tightening up of US tax rules will clearly have an impact on Ireland,” says Ron Davies, professor of economics at University College, Dublin, who specialises in tax competition issues.
Being smart can be expensive. Ireland’s average manufacturing labour cost was $25 per hour in 2006, five times higher than Poland’s, according to the U.S. Bureau of Labour statistics. The economy has shed 13% of its manufacturing jobs in the past seven years, as companies shift production to cheaper countries, frequently Eastern European. In January ‘09, US company Dell, once Ireland’s largest exporter, said it would cut 1,900 jobs at its Limerick factory and transfer most production to Poland.
Thus, more and more highly trained Irish trades people and professionals found themselves on dole queues, contemplating a brighter future in buoyant economies like Australia a country seeking tens of thousands of qualified and experienced people, Global Financial Crisis notwithstanding. In Ireland, salaries are also being slashed as job losses mount. Martin promised that Ireland will survive the hard times without a bailout.
“Don’t count on it,” says Willem Buiter, former chief economist at the London-based European Bank for Reconstruction and Development and now a professor at the London School of Economics.
“It really depends on whether the markets lose faith in the ability of Irish authorities to impose the amount of fiscal pain that’s necessary,” says Buiter.
Dublin is pockmarked by unfinished construction projects, including one of Anglo Irish bank’s investments, a 412-million euro deal in 2007 to buy land for a 2,000-unit apartment complex. By February 2009, the property was worth 30% less, according to one of the investors, the government-owned Dublin Docklands Development Authority.
Irish taxpayers are now reluctant stake-holders in this and other stagnating projects, paying the price for a decade-long party that ended with long-lasting hangovers all round. Little wonder so many Irish are applying for visas and buying plane tickets, frequently for Australia, which desperately seeks skilled migrants to fill the increasing number of jobs in the resources sector and the many infrastructure projects now being launched, or planned, as well as feeder and service industries.
Many skilled people in Ireland - as well as the UK, US, South Africa and diverse other countries - have now re-assessed their futures and, looking out for long term opportunities, are already entering Australia’s skilled migration program. For those still ‘thinking about it’, it might be wise to act with some speed to explore the wide range of opportunities continually unfolding in many regions, throughout this huge country.
Enough with the aussie cynicism. There are good jobs in dodgy outfits in Ireland.
A new bossman for fabled Anglo-Irish Bank will be dropped into Ireland from Australia.
Is he honest?
Can he handle banks as well as Ned Kelly?
“which desperately seeks skilled migrants to fill the increasing number of jobs”
what planet are you people living on? You are alone on this point of view. Australia is shedding its non national workers because they are easy to get rid of. keeps the employment figures looking better too…
@jim
Sounds like you could be an employee of Dublin Docklands Developers Autocracy, DDDA?
“non national workers” is a pejorative phrase used by some gauche Celtic-Tiger klein-Irlanders. The phrase borders on racism. Only Antarctica has ‘non-nationals’ and they are Penguins. If you use it in Aussie hopefully they’ll kick you out.
In Canada such people are simply referred to as “newcomers”. That’s civilised.