Why is Ireland so pro EU?

Introduction

One of the dreams of the Brexiteers is the creation of a domino effect and a hope of Irexit and indeed that other countries might follow them out of the EU. Irexit would be very good for the UK as it would remove the Irish border issue, which is a major sticking point, and indeed has the ability to totally derail the entire Brexit dream. The Irexit campaign, in addition to the usual Brexit suspects, is to some extent spearheaded by Ray Basset a former Irish Ambassador to Canada and now a member of the right wing and pro-Brexit think tank Policy Exchange. It seems clear, however, that the campaign is gaining near zero traction in Ireland. If anything, support for the EU has increased from around 80% at the time of the Brexit referendum to closer to 90% in the latest Red C poll.

The Irexit movement is gaining so little traction possibly because the right-wing pro Brexit press has very little following in Ireland. Addionally, the British Government is seen as incoherent and divided, no credible economic case has been made, it is seen as an English Nationalist project, and more profoundly, I think, there is little appetite to rejoin the UK’s sphere of influence. Indeed, one of the main reasons for Ireland joining the EU in the first place was to decrease dependency on the UK. Whereas the Irish in general have great admiration for the UK culturally, there is a belief that it is run for the benefit of the very wealthy (top 1%) and geographically for London and the South East of England.

The Southern Irish look towards the North of Ireland as a test-bed as to what the whole of Ireland might look like if it remained linked to the UK – even as recently as the 1970s Northern Ireland was the richest part of the island. Now, even with a c £5.5k per capita subsidy annually from the UK exchequer,  it has fallen so far behind its southern neighbour that comparisons between East and West Germany are entirely appropriate. To take just one area, job growth, which looks good for the island of Ireland with a forecast showing 144k net new jobs by 2020. However, fewer than 3% of these jobs are forecast to be in the North, which is dire given that the North’s population is about 37% of that of the South.

Another issues is that the Irish have very much “bought into” the EU and knowledge of how the EU actually operates is far higher than the UK. This is possibly because of what sometimes seems like endless referendums on the EU (there have been eleven) and Irish people do not see the EU as remote, often having relatives and friends working for the EU or in other EU countries. The Irish understand that the EU is above all else designed as a consentual and collaborative  project where all nations have a voice and members of the club support each other – and even the smaller nations. The first approximation of the EU is that it is all about people. This understanding has manifested itself in the support of the EU on the Irish border issue, which has exceeded even the high expectations of the Irish.

Knowledge of the EU in the UK on the other hand seems poor even in the government. The belief seems to be that the world still consists of great powers and that the EU must be a German Empire (and to a lesser extent a French one), a few minutes phone call to Angela Merkel, or a well scripted speech to German car manufactures is all that in deeded for the UK to get a “cake and eat it” deal. The EU is all about money. As Chris Kendall says

“The UK government seems to be dealing with a fantasy EU that resembles the caricature presented in British tabloids, not the real EU of which it has been a core member for over four decades”.

This interview of Mairead McGuinness (Vice President of the European Parliament) on BBC Daily and Sunday Politics is worth watching as it highlights the difference in understanding and approach and I for one find troubling in that the BBC interviewer, Jo Coburn, seems very poorly briefed.

On a personal level when I meet Irish people abroad I assume we will have mutual friends in common much to the amazement of my English wife. Last summer we were staying in a campsite in Freiberg im Breisgau (Black Forest Germany)  and in reception I was approached by a man, “I’m Maurice from Trim, and I couldn’t help but notice your Irish accent”. I replied “From Trim do you say? Do you know PJ Larkin?” (an old friend from UCD who had spent the last 20 years or so as trade negotiator in Brussels working on  for example gas imports from Russia). Maurice “Of course I know PJ, Sure wasn’t I at school with his brother!”  PJ has also been a life long member of Fine Gael and at the time of the recent leadership election between Leo Varadkar and Simon Coveney when asked “who do you prefer?” replied “They are both excellent but on balance I would prefer Simon.” These of course are now the Taoiseach and Tánaiste/ Minister for Foreign Affairs (PM and deputy PM).

In Ireland Brexit is seen as a unfriendly act according to the former Taoiseach John Bruton. The difference of perception, between Ireland an the UK, is possibly best expressed by the Bruton’s comment “The EU has bent over backwards for Britain during its membership. Now, during negotiations to leave, it is Britain’s responsibility to return the favour.” The current Irish government are far too diplomatic to say this. Nerveless Brexit is seen as the major external threat to Ireland prosperity for decades and even has the possibility of destabilising the border region. Whereas to say the country in on a war footing would be overstating things, there is near universal agreement that in this critical time all should pull together. As such all aspects of the Irish Governmental apparatus is focused in mitigating the effect of Brexit with near total support in the Dáil (lower house) and Seanad (upper house). In contrast the UK team is perceived as dysfunctional, with the Brexit project not universally embraced in the joint venture of a glorious future outside the EU. The quality of the individual players also makes the Irish think they are the adults in the room.

What drives the Irish so much towards the EU? Brexiteers like to ram home the effect of the 2008 Global Financial Crisis (GFC) on Ireland and aggrandise the modest UK contribution to the bailout of the Irish economy. Economics, Trade and History might provide some sort of answer. The fact is that the Irish economy is quite possibly in the best shape it has ever been, which makes people reluctant to change.

Some economic history

As is well known, when Ireland became independent in 1922 it did so without the northeastern 6 counties, which were by far the richest in Ireland at the time and produced about 80% of the total industrial output of the island. The decade from 1912 – 1922 was in many respects a tragedy for Ireland and the UK as a whole. Things could have played out very differently, with one possible outcome being  a properly devolved UK.

The new Irish Free State did not lack ambition, however: embarking on the building of the Ardnacrusha hydroelectric power station from 1925-29, for instance, which was the largest in the world until the Hoover Dam was completed in the US. The Ardnarusha project cost c 20% of the entire Irish government expenditure of the period, which is a level of ambition difficult to conceive of today. It is also still in public ownership as Electricity, Water and Rail have never been privatised in Ireland. The 1930s were complicated by the  Economic Trade War with England and the 1940s by the 2nd World War. A dream of national self sufficiency was the desired goal – as was common at the time. The Irish economy was tiny by world standards, whereas this might be sensible in large economies such as the US, even in the mid 1960’s Ireland was still very protectionist. I remember visiting Belfast in 1968 and buying British sweets which were not available in Ireland; Opal Fruits (now known as Starburst) were delicious! The Anglo Irish trade agreement signed in 1965 can be seen as a precursor to joining the EU but was widely perceived as much more advantageous to the English. This was to be expected given the larger partner gets to dictate most of the terms in a trade agreement.

For some historical perspective I would recommend Prof Kevin O’ Rourke’s analysis in the Irish Times which looks at the growth both inside and outside the EU, as shown in Fig. 1.  Given a level playing field one would expect growth and GDP per capita in similar countries to be negatively correlated (poorer countries should grow faster than richer) and indeed the 1954-73 trend line (not drawn) shows this quite clearly,  but the 1973-2001 graph less so. The 54-’73 performance of the Irish economy is well below the trend line, and whilst showing better growth than the UK or its constituent parts (NI is bottom of class) it was poor by European standards. Although Ireland was politically independent before accession to the EU it was economically very much tied to the ‘sclerotic’ (to use a favorite Brexiteer term) UK  economic area. Indeed Britain was often referred to in this period as the “Sick man of Europe.” By 1973 Ireland had been overtaken in GDP per capita terms by Greece, Portugal and Spain and indeed was the poorest country in Western  Europe.

Fig 1. performance indicators for the Irish economy 1954-73 and 1973-2001.

 

Since 1973, however, despite being at the back of the grid Ireland has been on average the best performer in class, well above the trend line and rivaled only by Norway (with its oil wealth). Roll forward to the present day and Ireland is now one of the richest countries in both Europe and the world on paper. For example, the CIA estimate the 2016 Irish GDP per capita as $69,200 and the UK at $42,500 and the 2017 disparity is likely to be even greater as Ireland continues to be “best in class.” Of course “In  theory there is no difference between theory and reality. In reality there is.” In reality GNP is probably a better measure of the Irish economy and is about 20% lower. Nevertheless, Ireland is doing really well.

Focusing on another direct comparison with the UK, it is interesting to plot the GDP ratio of the two economies using IMF data (available from 1960)  as shown in Fig. 2. The trend is fairly dramatic; Ireland has gone  from under 3% of the size of the UK economy to over 11% at the end of 2015 (one would expect about 7% if the GDP per capita were equal). Currently (the end of 2017) the Irish economy is about 12.5% of that of the UK. There is no reason to believe that this positive trend will not continue until at least 2020 as the predicted Irish growth rate of 3-5% is much higher than that of the UK (around 1.5%). Interestingly, the 12.5% figure is larger for the first time in 200 years than the assumed ratio of 2/17 which was used to estimate the relative size of the two economies when Ireland was fully merged with Britain under the Acts of Union (1801). As I previously stated, however, GDP tends to overestimate the size of the Irish economy and a 1:10 ratio is probably nearer the mark and makes comparisons with the UK easy as one simply needs to multiply the Irish figures by 10.

Fig.2 EI vs UK GDP per capita, source IMF.

 

Why has Ireland been successful?

The answer to this question is to some extent simple, in that Ireland has been incredibly successful in attracting Foreign Direct Investment (FDI), particularly American Multinationals. But real question is, why has it been so successful?  “Victory has a thousand fathers but defeat is an orphan” and libertarians look towards the 12.5% corporate tax rate which is very low by world standards. If you actually plot the Irish GDP data (Fig. 3) however, as analysed  in Fool’s Gold, it is clear that there is no correlation between corporate tax rates being raised to 12.5%  and growth. It seems as if the Irish GDP flat-lined at around 60% of the EU average from 1955 right through until 1993 but then exploded right up to the 2008 Global Financial crisis (GFC). This exactly correlates with the formation of the Single Market. It is interesting that adoption of the Euro by Ireland (not shown) in 1999 seems to have had no measurable effect on this graph.

Fig. 3. Irish GDP as a percentage of the EU average with important events highlighted.

 

Another major factor is having a very highly skilled population and running a skills surplus, particularly in areas like science, for most if not all of the past 50 years. Ireland is an outlier in that over the last half century it easily produced more science graduates per capita than any individual country in the rest of the EU – although in the wider technology area it is matched by Sweden. For example, in 2001 Ireland was producing 4 times as many science graduates per capita as the UK. When I arrived in the UK in 1981 the difference was closer to a factor of 10. I was somewhat shocked by both the quantity and quality of the students I had to deal with in England. At the time (1981) something like 20-25% of the Irish population were studying to degree level (and about 20% in the sciences) and the UK figure was about 9% of the population, with only 5% in the sciences. Many of the Irish that left Ireland in the 1980s were able to return to contribute to the explosive growth rate in the 1990s, not just with a good education but with considerable industrial experience. Indeed, in the late 1990s it was estimated that about 200,000 of the Irish workforce had gained considerable experience abroad. After that, of course, there was mass immigration from other countries in the EU.

Ireland has very strong cultural links with the US. Indeed there are 34.5M Americans who claim Irish ethnicity, which is about 7 times the population of Ireland. These tend to be concentrated in major cities such as New York, Chicago and Boston. Indeed, Boston is 20% Irish, prompting Mary Harney in 2001 (the then Minister for Enterprise Trade and Employment) to remark that “Ireland is closer to Boston than Berlin.” There is a lot of  truth – culturally – in this and Americans find it very easy to adapt to Ireland. Ireland is also very well set up for FDI, with a highly educated STEM workforce. Consequently, recent headlines such as Ireland named best country for high-value FDI for sixth year in a row, Dublin ranked third in the world for foreign direct investment, and especially, Irish tops world chart for high-value FDI but UK hit by Brexit, do not encourage the Irish to look to the UK as an exemplar.

An example: the pharmaceutical sector

Ireland is probably more famous (or infamous) for hosting the European headquarters of many hi-tech companies, including Apple (based in Cork since 1980), Google, Facebook, Twitter and LinkedIn based in Silicon Docks Dublin, and Intel based in Leixlip. The infamy comes over suspicion of secret tax breaks and avoidance, most famously in the case of Apple, which was  fined €13bn by the European Commission in 2016 for breaking EU state aid laws.

The Pharma sector however is possibly an even greater success, with 24 out of the top 25 pharma companies having a presence in Ireland and often a very substantial presence. Eighteen of the top 20 pharma companies have considerable manufacturing presence.  Irish pharma exports are a staggering €65bn (about 1.5 times greater than the entire NI GDP). And it is not just manufacturing – there is extensive research. Indeed, Ireland  entered the top 10 countries globally for scientific research for the first time in 2016. There is also a growing indigenous pharma industry manifested in such companies as  Chanelle. The pharma sector is fairly widely spread over Ireland, with Cork being the most important city however. Indeed, the GVA per employee is higher in Cork than in London or Dublin.

Trade

I have seen it often stated that the UK is Ireland’s largest trading partner but this is simply not true. In terms of exports, over the past 5 years it has generally been in 3rd place – well behind the US and a little behind Belgium/Luxembourg, as illustrated in the MIT OEC Data in Fig.4. This shows the 2015 figures but they are fairly typical. In ball park terms about 50% of Irish exports go to the EU (excluding the UK), about 20% to the US, 12% to the UK and the remainder to many diverse countries, the largest being Japan at about 5%. The nature of trade is however different. Exports to BE/LU are largely pharmaceuticals, whereas exports to the UK have a much larger percentage of agri-food produce. For example, Ireland is 1000% self sufficient in beef (when I lived there there were more than twice as many cattle as humans in Ireland), much of the 900% surplus goes to the UK, and the UK takes about 37% of agricultural exports overall. Because of Ireland’s geographical location there is also lot of trans-shipment to the continent, largely through Dublin/Holyhead/Felixstowe(or Dover).

 

Fig.4 Irish exports 2015 by country.

 

In terms of imports, however, the story is quite different in that the UK is the largest partner and accounts for about 24% of all imports, followed by the US (17%), France (13%) and Germany (10%).

 

Fig. 5 Irish Imports 2016 origins.

 

Indeed, Ireland is one the few countries with which the UK has a trade surplus. However, knowing that the UK economy is about 8 times the size of the Irish one, the argument “you need us more than we need you” is not one that would gain any traction in Ireland. There is a understanding that in any one to one confrontation between Ireland an the UK, Ireland will lose.  There seems to be a total lack of self awareness however  in the UK’s dealing with the EU27, which is about 6 times the size economically of the UK, that it is in a far weaker position and the “you need us more than we need you” argument resonates very strongly with the UK Brexit voting public

 

Conclusion

Would the UK recognise after the narrow 52-48% Leave result in the referendum that Scotland voted the other way by a super-majority of 62-38%? The answer sadly is an emphatic NO. In Irish eyes the Scots have been treated contemptuously and are under no illusion that they would be treated the same if still part of the UK.

There is very little appetite in Ireland for leaving the EU. It has been extremely positive for Ireland; transforming it from one of the poorest to richest countries in Europe. One thing not often remarked on – but nevertheless significant – is that Irish roads have also been transformed. In 1973 there were no motorways in Ireland. Indeed, the first flyover junction (a bog standard one which are so ubiquitous now) was built in 1974  just outside the UCD Belfield campus when I was an undergraduate. Now there is over 1000km of motorway and the roads are better than the UK. Joining the EU has achieved one of its major goals of the reduction of dependence on the UK, with exports down from over 50% of the total to 12%. The Single Market is vital for Ireland, with the pharma industry alone exporting €65bn of goods – which dwarfs the €11.2bn of the agri-food sector. Of this agri-food, 37% goes to the UK, which is indeed a worry but by no means a major part of the Irish economy.

The behavior and conduct of the UK government after the referendum is not admired in Ireland and the treatment of Scotland in particular is worrying. Ireland will not leave the EU in the foreseeable future.

 

Comments

  1. Peter May -

    I’m not sure about the ‘treatment of Scotland’ – they voted to remain in the UK so now they have to live with UK decisions. As do we all even when, as you say, the UK team is (correctly) perceived as dysfunctional.
    As long as the Irish retain the support of the EU for no hard border then Brexit is effectively lost anyway. May will not admit this, I come to the conclusion, because she wants to hang on to power for as long as she can.

    In a sense Ireland’s love for the EU is unsurprising – they have expanded and flourished within it. In Britain’s lack of love for the EU, the perception is that the EU hasn’t made much difference. Each started from a different place.

    On Irish interest payments for the British loan – was it made in Sterling or Euros? And was Britain stupid enough to borrow it first I wonder?

    1. Sean Danaher -

      Peter
      maybe you are right about the Scots but as one of the main Scottish referendum issues was that if Scotland became independent it might have to apply to rejoin the EU, they have a right to be hacked off. Another issue I think is that the Irish believe in proportionality (and use PR with a STV for their elections). A winner takes all approach on no matter how tight a margin seems totalitarian to the Irish. I find it very odd that there can be such major constitutional change such as Brexit without a super-majority of the UK and its constituent parts.

      Even a 71-29% split pro devolution (there wasn’t a referendum but you can analyse the GEs in the 1910s) never mind independence ripped Ireland apart in the 1912-22 period as the Ulster Unionists were absolutely determined not to let it happen.

      Regarding the border, paragraph 49 and 50 of the phase I agreement seem absolutely watertight, and I agree. The Irish will emphatically fight for no visible border. However there are many in NI who think this will lead to “special status” for slow learners and others who think the Brexiteers would throw NI under the bus in a millisecond is it got in their way of their hard Brexit dream. The DUP will not have an effective veto for long.

      Regarding Ireland prospering, indeed it has but there are three other aspects I didn’t touch upon. Firstly in simple monetary terms Ireland was a net recipient, not a
      donator for the first 30 years or so of membership. Secondly Ireland was very agricultural and benefited greatly from the Common Agricultural Policy. Thirdly the underpinning of peace between Ireland and Northern Ireland was facilitated by a large extent by the EU both directly and indirectly.

      The loan is interesting and you make an interesting point. The Irish financial crisis was a banking one, which the Irish Government mistakenly judged to be a liquidity crisis rather than a solvency crisis, and stupidly agreed to guarantee most, if not all, bank debt. (My view is that the Government was point blank lied to by the bankers and Ireland should have done an Iceland, jailing them as an example!) One of the banks most exposed was Ulster Bank then I think was a subsidiary of RBS, but either way was a UK bank and extremely heavily exposed. Indeed I’ve heard it said that the Irish Banks got into difficulty in the first place because they had to compete with Ulster Bank’s aggressive mortgage lending. It was a hard headed business decision and certainly not altruistic or generous. Stupidity didn’t come into it! But to reiterate a good point, I think QE would have been the best way to fund this one.

  2. Peter May -

    I presume the dreaded Euro got in the way… That is the surprising bit really: the Irish are pro EU in spite of being stitched up by the Euro. I suppose, as everywhere else, a lack of knowledge about money and where it comes from means they don’t connect the dots on that one.

    1. Sean Danaher -

      Peter

      yes that’s interesting. Ireland was tied to Stirling for decades; I can’t remember the details as to how this was arranged, I think it was a voluntary tie and ended in 78/79 but even then joined the European Money System but did float to some extent before they joined the Euro in 99.

      There is almost no awareness of MMT. Though I had an interesting conversation in UCD about 18 months ago regarding Richard Murphy and Bill Mitchell with a former colleague, so there is at least some penetration.

      There is agreement I think also that the warning signs of the crash would have been seen earlier had it not been for the Euro.

      There is resentment that devaluation was not an option and many people had real wage cuts, University staff including professors. The ability of the UK to devalue its currency fairly dramatically after the GFC and preserve wages was envied.

      Given that the GFC was far worse in Ireland than the UK, and it had a deeper recession, the fact that Ireland has bounced back much more strongly than the UK has not escaped notice and it is not obvious that having a sovereign currency helps that much.

      Of course I would argue that the UK behaves as if it doesn’t have a sovereign currency is is no exemplar.

      The Irish economy is the last place to test MMT as it is extraordinarily open. Trade in goods and services are about 130% of GDP, I think from memory, but may be greater.

      You should press for MMT in the UK. I detest Brexit but it is a far more closed and larger economy and would be a much better test-bed.

    2. PJ -

      The Irish were not stitched up by the euro. That’s nonsense. They stitched themselves up by incompetent bank regulation (which also happened in the US and UK).

      The EU warned repeatedly that the economy was overheating and that it was time to curtail lending. The govt at the time, with the support of their base, told the EU where to get off, and then compounded the problem by guaranteeing bank debts. The crash was a hard lesson after the country’s first real experience of prosperity and will leave scars on the national psyche not unlike that of inflation on the Germans.

      Yes, the euro exacerbated things but it was simply not the cause of the problem and opting out of it would be dumb. Ireland has Europe’s largest airline and most of us enjoy visiting the Eurozone and purchasing things in the EU and doing business across borders without hassle of exchanging currencies or hedging.

      1. Peter May -

        “opting out of [the Euro] would be dumb. Ireland has Europe’s largest airline and most of us enjoy visiting the Eurozone and purchasing things in the EU and doing business across borders without hassle of exchanging currencies”
        I think you’ll find that the hassle of exchanging currencies is as nothing compared to not being in charge of your own currency.
        Ryanair may be Europe’s largest airline – but its largest market is the non Euro UK.

  3. Donald Liverpool -

    This piece is rather amusing. The writer says Ireland has low appetite for leaving the EU, and then ironically describes in detail why it should. He just needs to take the next logical step and he will turn.
    The Single Market is ‘a good thing’ which is why sensible EFTA countries have signed up to it. Sean doesn’t describe any of the worthwhile features of EU membership over and above Single Market participation. Why is that? I’ll leave it to him to decide.
    The bit about building roads is particularly delicious. What is the narrative here – that Irish politicians only decided that road building and improvements were a good idea because some people in Brussels told them and backed it up with a little handout taken from other EU contributors. Does anyone really think Irish politicians are that stupid that they couldn’t work out the merits of roads for themselves, that perhaps non-EU territories like the Isle of Man or Iceland built roads themselves because their governments are more intelligent and can budget accordingly without the paternalist Euro-Daddy to tell them. This condescending attitude of the university classes to their fellow nationals is part of why the UK voted out.

    1. Karl Nordstrom -

      A ‘single market’ between nations needs a (presumably shared and democratically elected) supervisory organisation and a mechanism for legally enforcing the agreed standards. Being in the EFTA instead of the EU means signing up for the standards and the enforcement mechanisms but not taking seats in the supervisory organisation. As long as only a couple of smaller nations whose interests align well with some larger full members states’ do this there’s no big problem, it’s their own loss of influence. But if a large number of nations joined EFTA and in particular if they form a group whose interests do not align well with member states’, the EFTA itself would eventually unravel as the remaining EU states over time would be incentivised to change the rules of the single market to prioritise their own needs. While it therefore might have been viable to consider Irish EFTA membership in the past, Brexit makes it an unsustainable option in the present.

      This is partly why Norway really isn’t very keen on the UK joining the EFTA. Norwegian interests have been well-served in the EU by the UK-Nordic block. Dividing that up into a Swedish-Finnish-Danish EU block and a Norway-UK EFTA block ultimately makes it less likely that EU decisions will align with their interests.

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