A Political and Economic Dictionary of Western Europe, First Edition
The Republic of Ireland, founded in 1949, is composed of 26 counties in the south of Ireland. The establishment of the republic followed a conflict-ridden process of liberation from the United Kingdom. A first attempt to declare independence—the Easter Rising of 1916—was crushed by the British. The Irish Free State was later established as an independent state under the British Crown in 1921. This also led to the partition of Ireland as six counties remained part of the United Kingdom. Irish independence was followed by a year-long civil war fought between those who accepted partition and those who wanted the whole island of Ireland to be independent of the United Kingdom. This issue remains the most significant cleavage in Irish politics. Under the leadership of Eamonn De Valera the Irish Free State was abolished, and a new constitution established Eire (Ireland) as a sovereign and democratic state in 1937. This became the Republic of Ireland in 1949.
Area: 70,000sq km; capital: Dublin; population: 4m. (2001).
In the Republic of Ireland the head of state, the President, is directly elected for a seven-year term. Since 1997 this office has been held by Mary McAleese. Legislative power is vested with the bicameral parliament, the Tithe an Oireachtas, which is made up of the Dáil Éireann and Senead Éireann. The most recent elections to the Dáil were held on 17 May 2002. Executive power is given to the government, headed by the Taoiseach (Prime Minister). Bertie Ahern has been Taoiseach since 1997.
Irish politics are traditionally dominated by two main centrist parties, Fianna Fáil (FF) and Fine Gael (FG). While broadly similar on economic policy, these two parties differ according to which side supporters stood on at the time of the civil war: while FG accepted division, FF wished to maintain a united Ireland. Today, FF is more committed to unification or co-operation with Northern Ireland, and FG is more indifferent to Irish unification. Ireland is also divided on social issues such as divorce and abortion between fundamental and liberal Catholics. On social issues FF is more fundamentalist and FG more liberal.
Originally support for FF or FG was large enough to ensure that both parties could form single party majority or minority governments. FF led governments under Taoiseach Eamonn De Valera for a total of 21 years in 1932–59. It also governed in 1957–73, 1977–81 and 1987–94. FF regularly chose to go into opposition rather than enter into coalition government. Since the 1980s support for the two main parties has declined on account of a series of party corruption scandals, and they have increasingly been unable to govern alone. Now both parties are willing to form coalition governments with the parties on the left—the Labour Party and the Democratic Left—and the right—the Progressive Democrats (PD). As FF has moved from its commitment to single-party government to governing in coalitions, so the influence of the FG has gradually diminished.
Since 1997 FF had governed with the neo-liberal PD. In the 2002 election FF was re-elected, increasing its share of the vote, and continued to govern in coalition with the PD. The election in 2002 was significant for two reasons: it was the first election to be called after a government had completed a full five-year term in office; and it was the first time since 1969 that an incumbent government had been returned to office. The success of the FF-PD coalition was attributed to its successful management of the economy, the economic boom and the successful negotiation with the United Kingdom of the Good Friday Agreement on Northern Ireland in 1998.
Ireland joined the European Economic Community in 1973, together with the United Kingdom and Denmark. An enthusiastic member state, Ireland regards the project of European integration as an alternative allegiance to its traditional relationship with the United Kingdom. Ireland has also enjoyed significant financial benefits from the European Common Agricultural Policy and structural funds. However, as a militarily neutral country that is not a member of the North Atlantic Treaty Organization, Ireland opposes any European Union co-operation on defence issues that appears to threaten the state’s neutral stance. In the referendum held on 7 June 2001 to endorse the Treaty of Nice, concerns were raised about whether the development of a Rapid Reaction Force would compromise Ireland’s neutral security position. In the referendum voters rejected the Treaty of Nice (no 53.87%; turn-out 35%). Following a national debate, a second referendum was held on 19 October 2002 and a yes vote was secured (yes 62.89%; turn-out 49.47%).
Economy: The Irish economy is traditionally rural and agricultural. With a small home market, it specializes in the export of beef and dairy products. Food production employs as a rule around one-quarter of Irish workers. Ireland joined the European Economic Community in 1973 and benefited significantly from membership. Irish farming received large subsidies from the Common Agricultural Policy and real per caput farm incomes rose by just under 60% in 1972–78. The Irish economy had a history of mass emigration to the United Kingdom and the USA from the 1950s until the late 1980s. Since the late 1980s the Irish economy has been transformed. It has achieved rapid rates of economic growth and has been dubbed the ‘Celtic Tiger’.
GNP: US $87,700m. (2001); GNP per caput: $22,850 (2001); GNP at PPP: $104,000m. (2001); GNP per caput at PPP: $27,170 (2001); GDP: $103,298m. (2001); exports: $98,566m. (2001); imports: $83,221m. (2001); currency: euro; unemployment: 4.6% (2002).
Until the 1970s Ireland’s manufacturing base was weak. Industrial policy developed subsequently through the Industrial Development Authority (IDA) has sought to promote manufacturing by offering tax breaks and grants to foreign investors. In the mid-1970s the IDA persuaded a significant number of US high-tech industries to invest in Ireland. These new firms accounted for almost all of the growth in manufacturing employment in the late 1970s. By the mid-1980s multinational companies were providing around 86,000 of Ireland’s 186,000 manufacturing jobs and by 1988 900 foreign firms accounted for 80% of Ireland’s non-food exports.
During the 1970s Ireland built up a substantial welfare state and provision was comparable to that of the United Kingdom. Formerly welfare had been provided from transfer payments from family members who had emigrated. During the 1970s Ireland invested heavily in health and education. Spending on health rose to 8% of gross national product (GNP) compared to the United Kingdom’s spending of 6%. In schools, average class sizes fell from 24 in the 1960s to 17 in the 1980s and Ireland possessed one of the most highly educated populations in Western Europe. By 1978 Ireland was spending more of its GNP on social security payments than Japan and the USA. The Irish welfare state expansion was funded through taxation rather than through economic growth, but the Irish economy suffered traditionally from a weak tax base. Tax rates were high, but there was narrow coverage and many exemptions. Value added tax (VAT) was 25%, but one-third of consumer spending bore no tax, and Irish consumers were able to cross the border to Northern Ireland where VAT was levied at a much lower rate. Corporation tax was set at 50%, but it raised only 4% of government revenue as many inward investors were offered tax breaks, increasing the burden on domestic firms. There was generous tax relief on exports and low corporation tax on manufacturers. Income tax on the average worker was the highest in Europe.
By the mid-1980s Ireland’s public debt had increased to 25,000m. punts, equivalent to 28,000 punts per household. This was at the time the highest public debt as a proportion of gross domestic product of any country in Western Europe. Servicing the debt, 40% of which was foreign debt, required one-third of annual tax revenues, and 90% of tax revenues came from income tax. In order to meet debt payments, the state increased tax from 31% of GNP in 1979 to 40% of GNP in 1984. It increased tax bills, putting pressure on pay and increasing levels of emigration, especially among the young and highly skilled. In the early 1980s a commission on taxation recommended that grants and tax subsidies should be cut, transforming Ireland from a tax haven for foreign investors to an all-round enterprise-friendly economy.
The Irish economy was transformed during the late 1980s and 1990s. It experienced unprecedented rates of growth and was compared to the boom economies of south-east Asia. Annual economic growth averaged 8.5% in 1994–99, four times the average European Union (EU) rate. Ireland also experienced rapid employment growth, with the rate of unemployment falling from 15% in 1994 to 4% in 2000. Public debt fell to 68% of GNP. Ireland’s rapid economic growth has been attributed to a combination of favourable conditions. An open economy, with a highly skilled labour force, Ireland benefited from the completion of the Single European Market in 1992 which encouraged further inward foreign investment capital, particularly from the USA. It has also received significant amounts of financial support through the EU’s regional aid programmes. In 1973–2003 Ireland received more than €17,000m. in Structural Funds and Cohesion Fund support. The Cohesion Fund contributed €586m. to Ireland in 2000–03. In the current programming period, 2000–06, Ireland will receive €3,350m. from the Structural Funds. These European funds have on the whole been well managed and invested in infrastructure rather than short-term projects.
Ireland’s growth has also been attributed to three aspects of domestic policy. Ireland developed a consensual system of social partnership. In the late 1970s Irish trade unions, collectively the Irish Congress of Trade Unions (ICTU), were strong, oppositional, and well organized—reaching a density of 60% and more in the public sector. As a consequence, wage costs in Ireland were high. From 1987 Ireland shifted to a corporatist system of national-level institutions of social partnership in the National Economic and Social Council. The social partners—the government, ICTU and the Irish Business and Employers’ Confederation—negotiated a series of three-year wage and social policy agreements which secured wage restraint, labour peace, employment growth and improvements in the standard of living. Governments also sought to encourage indigenous industry as well as foreign investors. One significant success was the Irish airline Ryanair, founded in 1986. This company broke the British Airways and Aer Lingus cartel on the route between London and Dublin, leading to a reduction of the return fare by 54%, an increase in traffic by one-third in 1986–87 and a boom in tourism and tourist spending.
Moreover, as the political situation became more stable in the late 1990s, there developed a cross-party commitment to supporting Ireland’s economic recovery and, later, its membership of Economic and Monetary Union (EMU) by 1999. A member of the European Monetary System since 1979, Ireland cut public spending during the 1990s to meet the convergence criteria for membership of the EMU. It adopted the single currency in January 2002. In 2001, however, Ireland received an ‘early warning’ letter from the European Commission which was concerned about inflationary pressures.
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