Ireland’s general election last Friday demonstrated, among other things, that Irish voters have been frustrated by the partial takeover of the country’s economic sovereignty by the European Union and the International Monetary Fund, and by calls to unwind some of the positive economic reforms of the past. Rejecting a major change of course, the Irish people, anxious to get their Celtic tiger back on its feet, gave a surprising (to outsiders) election victory to the party (Fine Gael) that campaigned on a platform of low taxes, pro-business regulations, and a renegotiation of the existing bailout deal with the EU and the IMF.
In fact, the Irish economy remains well-equipped for recovery with sound economic institutions and a high level of economic flexibility and openness. Unlike other euro-zone economies such as Greece and Portugal, where economic freedoms are feeble, the Irish economy, as the Economist magazine recently pointed out, is regaining competitiveness by reducing unit labor costs, and exports are booming. The workforce is well-educated and entrepreneurial, and according to a recent study by a special division of the Financial Times, in 2010 Ireland was the second most favored foreign direct investment destination globally, with the number of projects coming to the country increasing by an astounding 15 percent.
Those who wrote off Ireland’s chances for a rapid recovery from its current difficulties are repeating an error that occurs every time there is a hiccup in a market economy. For example, the Asian tigers, newly industrialized economies such as South Korea and Taiwan, faced a financial crisis in 1997. At the time, the popular interpretation was that that economic crisis debunked the “Asian Miracle.” Capitalism and globalization were repudiated and blamed for the bursting of currency and property bubbles and the subsequent difficulties of Asian emerging economies. Yet the years following have proven that interpretation wrong. The Asian tigers have bounced back strongly.
By the same token, Ireland appears ready to regain its lost economic momentum. Don’t be surprised when the Celtic tiger makes a roaring return.