Celtic tiger, laid low in downturn, shows signs of life

Most readers agree with my thesis that the two countries had a lot in common and were both facing a challenge in the wake of the credit crunch.

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Reader feedback is a great thing. The best reaction I ever got to a column in this newspaper was about a year ago, after a piece comparing and contrasting the effects of the financial crisis on the UAE and Ireland. Compatriots from around the Emirates responded with their own observations, most of them agreeing with my thesis that the two countries had a lot in common and were both facing a challenge in the wake of the credit crunch.

So here is an update for my Irish friends. I had the chance last week to get as well briefed as any Dublin correspondent when I met up with Conor Lenihan, the minister for technology and science in the government of the taoiseach (prime minister) Brian Cowen. Mr Lenihan, who was in Abu Dhabi as a participant in the environmental summit, is the brother of the Irish finance minister, so he is a good source of information on the prospects for the Ol' Sod.

By which I mean the country, of course, rather than the minister or, heaven forbid, the taoiseach. Over a very convivial dinner with Mr Lenihan and the new Irish ambassador to the UAE, Ciaran Madden, I formed the impression that the republic has handled a difficult situation rather well. Things are beginning to improve for the former "Celtic tiger", which at this time last year was anything but a powerful beast of prey.

To understand the economic disaster that overtook the country, you need look no further than the property market. Officially, property prices have fallen some 50 per cent but could be down as much as 70 per cent in some areas. The days when a Dublin apartment cost more than a house in Paris are in the past, but so too is the liquidity that resulted from the Irish property boom. The country's bust banks, which benefited from early government action to guarantee deposits, have been bailed out by measures similar to those taken in the US and Europe.

As in those cases, there is a price to pay, and in Ireland the axe has fallen heavily on the public sector. The recent budget, which some commentators labelled "brutal", was the culmination of a series of cost-cutting measures over the past 18 months aimed at reducing the public sector deficit. Virtually no one was immune to the cuts: teachers, health workers, the police, civil servants and pensioners all suffered cuts in take-home pay and benefits. Even the taoiseach gave up 20 per cent of his salary, to set an example.

Ireland's membership of the euro zone meant that it had to adhere to Brussels's policy on government deficits, which are not to exceed 3 per cent of GDP across the EU. The EU has given the country until 2014 to reach that target, from its current level of 12 per cent of GDP. Mr Lenihan said last week: "We have to live within the straitjacket of EU policy, but it's not a bad straitjacket. We needed this financial discipline." In the low-tax culture that sparked the Irish growth cycle in the first place (another similarity to the UAE), there was little room for a big tax increase.

Irish GDP rose by 0.3 per cent in the final quarter of last year - not exactly a tigerish resumption of growth but in line with general euro zone rates and an encouraging sign. Unemployment (largely the result of those public sector cuts) is high at 12 per cent but is no longer rising sharply. The optimism was echoed by the taoiseach this week when he predicted a marked improvement this year and a resumption of more normal growth rates in the second half, after the "worst year in Irish economic history".

Ireland's handling of the crisis has won plaudits from the IMF and the European Central Bank, both institutions holding up the Irish approach as an example of an economy acknowledging that it had made mistakes and proposing radical, even painful, action to correct the situation. Surprisingly, the turnaround has been achieved without the social disruption experienced, for example, in Greece. There have been no riots or violent demonstrations. Mr Lenihan claims it as a victory for the Irish political system. "We told the people straight how bad it was, and they believed us," he said.

Mr Lenihan's undertook his trip partly to learn from the UAE's policy of environmental innovation and partly to offer advice from Ireland's experience as a destination for foreign direct investment, much of it in high-tech industries. He was also in the Middle East to cement relations with Ireland's growing Muslim minority, many of whom worship in mosques funded by Al Maktoum Foundation. Members of Dubai's ruling family have property and other investments in Ireland and visit regularly, he said.