This graph illustrates Ireland’s best hope for recovering from its current crisis.

The Celtic Tiger boomed in the 1990s with economic liberalisation.  It rose in the economic freedom index of the Heritage Foundation and the Wall Street Journal to rank as the freest economy after Hong Kong and Singapore.  Notions that its economic success was due to EU subsidies and interventionist industry policies were misplaced.

Policy errors combined with the unsuitability of EU monetary policy for an overheating economy contributed to the property bubble, bank failures and the debt crisis of recent years.  However, Ireland stands a better chance of recovery than some other highly indebted European economies.

Internal devaluation is already working, export growth is strong, and the government has taken tough decisions, including cuts of 10 percent to public sector payrolls.

The biggest risk remains the possible need for further recapitalisation of Ireland’s banks and associated sovereign debt burdens.

The challenge for Ireland is to return to the principles of the Celtic Tiger and achieve growth rates in the next few years that will see its debt levels peak and reverse.

Ireland’s tigerish dynamics – liberalised, young, productive and hi-tech!

Click on the graph to enlarge.

Source: OECD, Eurostat, CBI, Datastream

Friday graph: why Ireland is broke

This is a graph courtesy of the Institute of Public Affairs in Melbourne, an impressive Australian thinktank.

It comes from the Irish government’s own 140 page ‘National Recovery Plan‘ published last week.

It is amazing reading.

  • From 2000 to 2009 average public sector salaries increased 59%
  • In 2004, 34% of income earners were exempt from tax. In 2010, 45% were exempt
  • In 2007 property taxes generated 6.7 billion euros.  In 2010 that figure will be 1.6 billion
  • In 2009 interest on government debt was 8% of tax revenues.  In 2014 it will be 20%.

Naysayers try to tell you that the Celtic Tiger was a myth and that free-market policies brought the Irish economy down.

The truth is exactly the opposite.  Liberalisation caused the Irish economy to surge until a return to big government crushed it.  Membership of the eurozone, poor banking regulation and the government guarantee of bank depositors and creditors were also major factors.

I wrote this article on Ireland recently (Otago Daily Times, 5 November 2010).

Watch British MEP Dan Hannan talking about it in the European Parliament below: