Philip Lane is Professor of International Macroeconomics at Trinity College Dublin. He is also a managing editor of the journal Economic Policy, the founder of The Irish Economy blog, and a research fellow of the Centre for Economic Policy Research. His research interests include financial globalisation, the macroeconomics of exchange rates and capital flows, macroeconomic policy design, European Monetary Union, and the Irish economy.
Last week he visited New Zealand as a guest of the Treasury, the Reserve Bank, and Victoria University. During his visit he presented this guest lecture on the troubled Irish economy, drawing on his recent report to the Irish Parliament’s finance committee on ‘Macroeconomic Policy and Effective Fiscal and Economic Governance’.
Some highlights from his talk (also reported here by Brian Fallow in the New Zealand Herald) were:
- Ireland’s is a real depression: 15% fall in GDP 2007-2010
- The Celtic Tiger 1994-2001 was no mirage
- The domestic bubble (2003-2007) was partly the result of Ireland’s membership of the Eurozone, which produced interest rates that were too low for a booming economy. When it burst, the problems were compounded by the global crisis
- The banking crisis followed. The excessive government guarantees to subordinated and senior bondholders were a major mistake (although bank shareholders were punished)
- This precipitated the fiscal crisis, with successive austerity budgets and ultimately the EU/IMF bailout
- Ireland has ‘bitten the bullet’ with cuts to public spending, wages, the minimum wage and welfare (although the cuts return most payments to around 2006 levels). This amounts to an ‘internal devaluation’ given the fixed currency, and has boosted prospects for the real economy
- The consensus in Ireland is to return to the core principles of the ‘Celtic Tiger’ era.
Asked whether Ireland would raise the 12.5% tax rate on inward investment, Professor Lane’s answer was, “never, ever”.
His account of Ireland’s rise and fall contrasts starkly with those of critics who saw Ireland’s predicament as a failure of ‘the neoliberal model’.
An example is this article by New Zealand journalist Alison McCulloch (‘Folly of Tiger is a warning for New Zealand’, New Zealand Herald, 24 April 2010).
I wrote this article in reply but the Herald declined to publish it.