Tuesday, August 4, 2009

Report: How the EU Promoted Growth in Ireland

The Republic of Ireland was transformed into a sovereign nation after the revolution against the British on the 3rd of May 1921 (Republic of Ireland). Prior to joining the European Union, Ireland’s economy was predominantly agricultural based (Republic of Ireland). Recently Ireland has modernized its economy by focusing more on services, high-tech industries, and trade (Republic of Ireland). After joining the European Union in 1979, the island of Ireland experienced substantial economic growth due, in part, to heavy investment by the European Union.
When Ireland first joined the European Union, the country was considered one of the poorest in the EU (Development of the Irish Economy). When Ireland joined the European Economic Community (the EEC) in 1973, Ireland had high unemployment, an average level of income per head that was 62% of the European Union’s average, and high emigration (The Impact of EU Membership on Ireland). For the reasons mentioned above, Ireland was designated as an “Object 1” region by the European Union between 1975 and 1999 (The Impact of EU Membership on Ireland). Today, Ireland is one of the richest economies in Europe (Development of the Irish Economy). According to the European Commission website regarding Ireland in the European Union, Ireland’s growth is due to a combination of many factors including the following: a stable political system in Ireland, a young educated English-speaking population, a large market of consumers as a result of the EU, unrestricted trade between EU members, the encouragement of free and fair competition between EU states, deregulation of the marketplace throughout Europe, a single European market, high levels of Foreign Direct Investment, billions of euro funded by the EU over 36 years, the break-up of national monopolies, and the introduction of low corporate taxes in Ireland (12.5%) (The Impact of EU Membership).

Trade Unions, such as the European Union, increase trade and limit trade barriers, thus promoting growth for member nations. Member states within the European Union experience both static and dynamic benefits of trade. Countries that benefit from free trade see an improvement in their Gross National Product, or GNP, and in their resource allocation. The countries now specialize in the industries they have a comparative advantage in. All factors shift to the productive industry. The countries export what they have a comparative advantage in and imports what they do not. These are the static benefits. The dynamic benefits include a decrease in unemployment due to a chain effect. First, export industries grow, causing a higher demand in materials from local industries. The local industries, in turn, produce more jobs and hire more workers. Free trade restrains cost-push inflation, or stagflation. Free trade can also act as a shock absorber in case of a disaster or unexpected event. Labor and capital flow, enabling an even playing field for companies and workers. Technology advances as knowledge flows. An expansion in the market allows for greater competition, price decreases, and more variety for consumers. Because of an increase in the shipping of goods, services, capital, and people due to free trade, infrastructure will have to improve. Investment will boom and the county’s output and income will increase. These things occurred in Ireland after the European Union began funding infrastructure projects and promoting economic integration.
The National Development Plan/Community Support Framework 2000-2006 funded and supported infrastructure, human resources, research and development, industry, agriculture/rural development, and other sustainable policies (National Development Plan/Community Support Framework 2000-2006). Approximately €54 billion was invested under the plan –which ended in December 2006 (National Development Plan/Community Support Framework 2000-2006). The plan resulted in the expansion of major towns, new residential areas, and new businesses (National Development Plan/Community Support Framework 2000-2006). The framework allowed for improving schools and creating roughly 31,000 new childcare businesses (National Development Plan/Community Support Framework 2000-2006). It has funded public transportation investments in the following initiatives: the Luas, the Dublin Port Tunnel, the Iarnrόd Éireann rail fleet modernization, and the Rural Transport Initiative (National Development Plan/Community Support Framework 2000-2006). The NDP/CSF also funded projects in the water and sewage treatment areas and tourism (National Development Plan/Community Support Framework 2000-2006). Funding by the European Union has aided in the development of Ireland as a knowledge-based economy through the NDP/CSF (National Development Plan/Community Support Framework 2000-2006).
Integration policies have also been vital in the development of Ireland. The introduction of the Single European Act of 1987, which was implemented on the 1st of January 1993, provided opportunities for growth in the Irish economy (Ireland and the EU). The SEA enhanced Ireland’s image as a low-cost manufacturing area, attracting foreign investment (Ireland and the EU). Through the Single European Act, the EU attempted a viable single market by ridding itself of non-tariff barriers (Ireland and the EU). The Single European Act called for four freedoms: the free movement of people, free movement of goods, free movement of capital, and the free movement of services (Ireland and the EU). According to Jacques Delors, a former President of the Commission, the promise of deeper integration attracted high levels of foreign investment from Japan and the United States (Ireland and the EU). Delors claimed that removing trade barriers and furthering integration were the most important factors in the growth of the Irish economy (Ireland and the EU). In 1993, state aid to companies was outlawed (Ireland and the EU). Ireland was affected by this change since it could no longer fund Irish Steel, Telecom Eireann, and Aer Lingus (Ireland and the EU). As a result, private sector investment created more jobs in Ireland (Ireland and the EU). The creation of Irish companies such as Ryanair and Esat Telecom became successful (Ireland and the EU). Irish citizens can now invest in a broader range of bonds and equities from inside and outside of the EU (Ireland and the EU). Common standards and total protection allow for a level playing field that has led to greater completion in the EU (Ireland and the EU). Greater competition has led to more variety for consumers, lower prices, and higher returns to shareholders (Ireland and the EU). Although a wave of Irish immigrants came to America in the 19th and 20th centuries, Ireland is now seeing a wave of immigration due to the free movement of labor (Underhill). Roughly 200,000 Polish citizens have moved to Ireland (Underhill). Five percent of Ireland’s population is Polish (Underhill). All of these have contributed to Ireland’s growth due to integration policies in the Single European Act (Ireland and the EU).
The European Union consists of 27 member states and 493 million citizens (European Cohesion Policy). Although the European Union may seem like a large mother government that tightly molds its states, the citizens have their say through elected officials at the European level (Elections to the European Parliament). Citizens opinions are voiced and their rights protected by locally elected parliamentary figures (Elections to the European Parliament). Since 2007, the European Parliament has had 785 Ministers of the European Parliament, or MEPs, from all 27 states (Elections to the European Parliament). Ireland currently has 13 MEPs representing the following areas: 3 seats for the North West region, 4 seats for Dublin, 3 seats for the East, and 3 for the South (Elections to the European Parliament). Elections are held every five years (Elections to the European Parliament). One seat will be dropped in Dublin in the June 2009 elections, causing Ireland to hold 12 seats in the European Parliament (Elections to the European Parliament). In an open letter to the public, presidents Van der Brande and Pöttering stress the importance of voting, “The European public need to be made aware that their vote is crucial, since, by voting, they take their destiny as European citizens into their own hands (Pöttering).” In a symbolic reference to the power European citizens possess, the former Presidents continue, “Let's join forces to enable our fellow Europeans to take ownership of their continent (Pöttering).” Ireland, therefore, has a voice in the Union through representatives –a system similar to the United States.
The legal tender of Ireland had been the Irish pound since 1938 (Irish Pound). During the twenty years of the European Monetary System, the Irish pound demonstrated its lack of stability by fluctuating below 74 pence in 1981 and as high as 110 pence in 1992 (Irish Pound). The Irish Pound steadily depreciated against the Deutsche Mark until reaching a cumulative depreciation of 34% in 1993 (Irish Pound). The British and Irish 1p and 2p coins were unofficially interchangeable until the introduction to the euro (Irish Pound). On the 1st of January 1999, the euro was adopted by 11 countries, including Ireland (Irish Pound). The euro was fixed at IR£ 0.787564 (Irish Pound). It wasn’t until the 1st of January 2002 that Ireland began to replace the Irish pound with the euro (Irish Pound). The cash changeover in Ireland was one of the fastest in the Eurozone (Irish Pound). When the change took place, many in Ireland believed that prices rose because of traders taking advantage of the confusion (Irish Pound). In fact, the opposite was the case. The switch to the euro unintentionally led to the finding of steeper pricing in Ireland relative to the rest of the European Union prior to the euro (Hickman). In response, the Irish government called for an investigation (Hickman). The European Monetary Union, also known as the EMU or the Eurozone, consists of 16 countries (The Euro). The currency of the Eurozone is controlled by the European Central Bank, the ECB, which also controls the monetary policy of the Eurozone (The Euro). In 2007 and 2008 the euro rose dramatically against the dollar, eventually reaching $1.60 on April 22nd 2008 (Liang). International economist Jeffrey Frankel believes that the euro could overtake the dollar as the leading international currency within ten years (Frankel). This would mean that the euro would be used for international transactions and to store value. OPEC, the Organization of the Petroleum Exporting Countries, discussed in February 2008 whether or not they would continue to use the dollar as its main currency (OPEC May Switch to Euro). The Middle East Economic Digest, or MEED, quoted Secretary-General Abdullah al-Badri as saying, “Maybe we can price oil in the euro. It can be done, but it will take time (OPEC May Switch to Euro).” Amid the financial crisis, however, the euro has dropped against the dollar and currently rests at $1.3002 (Benchmark Currency Rates).

This graph demonstrates the correlation between the demand and supply of dollars. This is relevant in explaining a possibility as to why the euro has recently leveled out against the dollar. When the euro was booming, Europeans bought items from the United States at a lower price than in Europe. This was most evident during holidays, especially Christmas. When European’s purchasing power is high because of increased income and a beneficial exchange rate, Europeans consume more foreign and local goods. When consumption increases, the demand for dollars increase, causing the two currencies to level out.
Determinates of the exchange rate between the US and the EU can be expressed in the function: r=f (GNPUS, GNPEU, PUS, iUS, iEU, government, political events, and speculation). This states that the exchange rate is a function of –or is determined by– the Gross Net Profit of both countries, the price level of both countries, the interest rates of both countries, government interference, political events, and speculation. The definition of an exchange rate can be summarized in the equation: r=# of $/€. This simply means that the exchange rate is determined by the number of dollars per euro. Although the euro spiked against the dollar roughly one year ago, the euro has leveled out against the dollar. This could be because of three things. It could be because the increase in trade increased income and output, which caused people to consume more foreign goods, or imports. The price of the dollar would then rise relative to the euro. Another explanation could be the buying and selling of currency, called arbitrage. If a purchaser of currency tries to take advantage of the foreign exchange market, he or she might actually level it out through his or her transactions. The global financial crisis could also be the cause of the decline of the euro. Europe, as well as the whole world, is currently dealing with tough economic times. People are not consuming as much, investors are not investing as much, and everything seems uncertain. Protectionism has caught on like wildfire as a result of this uncertainty. New non-trade barriers are being placed by governments in the EU and the US. Such barriers will lower the amount of imports, or in-payments. Other countries may retaliate and exports may be refused or significantly cut. If this occurs, the economic recession might easily become a serious depression.
A major industry in Ireland is the construction industry. A possible indicator of Ireland’s economic decline could have been the drop construction employment prior to the economic crisis (Building Jobs Figure’s Record Drop). Average house prices dropped 1% in March and 10% in one year (Average Irish National House Prices Fell by 1.0% in March 2009; Down 10.0% in 12-Month Period; National Prices Now Back to November 2004 Levels). House are now priced at 2004 levels (Average Irish National House Prices Fell by 1.0% in March 2009; Down 10.0% in 12-Month Period; National Prices Now Back to November 2004 Levels). Even the International Monetary Fund has stated that the economic crisis in Ireland will be particularly severe because of the reversal of the housing boom (IMF: Irish Recession “Particularly Severe”). According to the Bank of Ireland, there has been a drop in new company registrations of about 18.4% when compared to the first quarter of 2008 (Bank of Ireland Says New Irish Company Registrations Fell 18.4% in the First Quarter Compared to Q1 2008). In County Dublin, the figure is about 20% and 21% in County Cork (Bank of Ireland Says New Irish Company Registrations Fell 18.4% in the First Quarter Compared to Q1 2008). Unemployment shot up to 10.9% in March (Crimmins). The Bank of Ireland and Allied Irish Bank received €3.5 billion from the Irish government in February (AIB and Bank of Ireland Both get €3.5 Billion). According to Joe Gill, Director of Research for the Bloxham Stockbrokers, stock markets would have fallen an additional 50%, interest rates would have increased above 10%, and inflation would have entered double digits if Ireland were not a member of the Eurozone during the economic crisis (Irish Economy: Ireland outside Euro During Financial Crisis Would Mean Further Market Fall of 50%; Interest Rates Above 10%; Inflation in Double Digits).
The European Union has begun funding €750.72 million in projects from 2007 until 2013 in Ireland (The Impact of EU Membership on Ireland). The European Regional Development Fund, or ERDF, will fund €375.36 million of that figure (The Impact of EU Membership on Ireland). The European Social Fund, or ESF, is funding the other half (The Impact of EU Membership on Ireland). The €375.36 million that the ESF will fund will be used toward human capital (The Impact of EU Membership on Ireland). The National Strategic Reference Framework, or NSRF, sets general terms on how this money should be spent (The Impact of EU Membership on Ireland). The priorities of the NSRF are as follows: to promote investment in human capital, support research and development, and strengthen competitiveness by improving infrastructure and promoting sustainable development (Cohesion Policy 2007-13). The Competitive and Employment Objective 2007-13 calls for the sectioning of Ireland into Phasing-in and competitiveness and employment regions (Cohesion Policy 2007-13). The Midland and Western region, which will be the phasing-in region, will receive €228.7 million from the ERDF (Cohesion Policy 2007-13). The Southern and Eastern Region, which is the competitiveness and employment region, will receive €146.6 million from the ERDF (Cohesion Policy 2007-13). Ireland’s National Strategic Regional Framework is primarily aimed toward the Lisbon Strategy for growth (Cohesion Policy 2007-13).
Another determinate of Ireland’s future is the Lisbon Treaty. In June 2008, Ireland held a referendum in order to pass the Lisbon Treaty that would amend their constitution (Focus On: Treaty of Lisbon). Massive propaganda campaigns on both sides ensured a vote in their favor. Here are some of the arguments for and against the Lisbon Treaty. Those who voted against the treaty claim that the treaty is 96% the same as the EU Constitution, which was halted after some member nations voted no (Arguments). Those who voted for the Lisbon Treaty argue that Europe has done so much for Ireland and that a vote against the treaty would be a stab in the back (Arguments). The European Citizen’s Initiative proposed in the Lisbon Treaty would give 1,000 citizens the opportunity to voice their concerns on issues (Arguments). Those who oppose the treaty argue that the European Citizen’s Initiative does not require that the Commission take into account the concerns of the people (Arguments). The Commission, they argue, initiates policy and has no link between itself and its citizens (Arguments). Another concern regarding the treaty was that the treaty would allow the European Union to make major changes to itself without any referendum or treaty (Arguments). Those in support of the Lisbon Treaty ensure that the changes allowed are minor and that each country has their veto right preserved (Arguments). Those in favor of the treaty claim that the treaty would enable majority voting, which would allow for small countries to have a larger voice in the EU (Arguments). Their opponents claim that Germany would have 16.7%, France would have 12.8%, and the UK would hold 12.3% of the vote while Ireland would hold only 0.8% of the vote, thus decreasing its power within the union and over some of its own internal matters (Arguments). Voters in the campaign for the Lisbon Treaty agree that Europe needs to be united in order to be a large influence on the global arena (Arguments). The Lisbon Treaty calls for the new position of High Representative for Foreign Affairs (Arguments). This new position would ensure a common foreign policy (Arguments). Another new position would be the European Council President, a position that changes every 30 months (Arguments). Some are concerned because the amount of power given to this position is unspecified in the Lisbon Treaty (Arguments). Proponents of the treaty claim that the Council President will have no decision-making authority (Arguments). These are just some of the many arguments made for and against the Lisbon Treaty.
On the 12th of June 2008, the Irish people voted no to the Lisbon Treaty (Press Release Archive June 2008). Commissioner Charlie McCreevy later made a speech in which he announced that the EU would not be halted as a result of the referendum and that things will go on as before (Press Release Archive June 2008). He went on to say that politicians should take the outcome as a learning experience (Press Release Archive June 2008).President Barroso also announced that he respected the outcome of the referendum and stated that the European Union should address the people’s concerns (Press Release Archive June 2008). On the 20th of November, Sweden ratified the Lisbon Treaty despite the Irish no vote (Focus On: Treaty of Lisbon). On that date, 25 out of the 27 member states ratified the Lisbon Treaty (Focus On: Treaty of Lisbon). In December, Ireland announced to the European Council that it would hold a second referendum in 2009 when concerns are quelled (Focus On: Treaty of Lisbon).
Ever since Ireland joined the EU in 1978, the European Union has contributed financially and politically to the Irish system. As a result, a once agriculture-based economy with little growth is now a booming gem in Europe. Through integration and investment Ireland has become a hot spot for manufacturing and knowledge-work. Despite the refusal of the Lisbon Treaty, the majority of Ireland –roughly 82%– believes that the European Union’s aid has benefitted Ireland (Press Release Archive June 2008). More money is being pumped into the Irish economy via the European Union and foreign investment to help ensure that Ireland’s economic future is stable and bright.

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