The Troika’s Model Student

Ireland’s GDP growth rate was 4.8 percent in 2014 when Trump touched down. Europe, by contrast, was still mired in the financial crisis and the Irish establishment was feeling seriously smug. In the run-up to the 2015 Greek referendum on Europe’s imposition of austerity measures, Noonan was anxious to explain Ireland’s recent apparent success:

What you do is you take ownership of the [Troika] program and you try to take your people with you. We’re the fastest-growing country in Europe because we took control of the program.

It wasn’t the first time Ireland had offered advice for the Greeks. Enda Kenny, the Irish taoiseach (prime minister) told CNBC at the beginning of March:

I’ve said that to the Greek prime minister myself: here’s a lesson from one small country that you can take some reflection on in terms of building your own economy for the future.

Noonan and Kenny were referring to Ireland’s three-year bailout deal under the supervision of the so-called Troika: the European Commission, the European Central Bank, and the IMF. Ireland had been one of the most prominent casualties of the global financial crisis; now, the country’s leaders were presenting it as a case study in economic recovery.

Neoliberalism Irish-style

The financial crash in Ireland had been preceded by twenty years of economic expansion, driven by Ireland’s peculiar integration into the dominant system of global neoliberalism. In its heartland, the United States, neoliberalism produced relatively stagnant levels of investment. Paradoxically, low levels of domestic investment in the United States freed up massive amounts of capital for overseas investment sites. Irish state agencies aggressively chased down foreign corporations.

The centerpiece of this effort was a low headline corporate tax rate of 12.5 percent. The effective tax rate is much, much lower, as Europe would find out in the Apple tax case (something we will address in detail below). Conditioned by this low tax rate, along with relatively low wages and access to the European Union market, net foreign direct investment rose by more than 700 percent in 1989 over the previous year. It doubled the next year in 1990 and again by 1996, with a peak of nearly €30 billion in 2002.

Irish exports took off after 1990 and rose to 100 percent of GDP in 2001. Irish exports to this day originate almost exclusively in transnational corporations, which are overwhelmingly American. This inward flood of US money drove the Celtic Tiger until around 2000. Then there was a pivot to Europe, but not for direct investment. Now the demand was for naked cash on the European interbank lending market.

Powered by a massive infusion of credit, Irish bank lending went from 60 percent of GDP to an eye-watering 240 percent between 2002 and 2007, with most of this cash going to property developers and ordinary Irish mortgage holders. This blew up a massive property bubble: by 2006, construction accounted for 29 percent of the total value produced in the Irish economy.

Paying the Price

House prices peaked in 2007, and anxiety generated by the global financial crisis then accelerated the subsequent slide. House prices fell by roughly 50 percent. The construction industry came to a “juddering halt,” according to one minister. Unemployment ballooned, hitting 15 percent by 2011.

Meanwhile, fear of a collapse was threatening to cause a run on the banks. On September 30, 2008, the Irish government panicked and guaranteed the losses of the country’s six major banks. In the two years that followed, the government pumped €46 billion into the banks and nationalized two of them. But this proved to be insufficient, and the collapse of the housing bubble abruptly cut off major sources of tax revenue. Irish tax revenues to April 2009 fell by 24 percent and a further 10 percent over the following year.

Rocketing interest rates on foreign borrowing forced the government into the Troika bailout in November 2010. The European Union and the big banks lent €67 billion (a figure which reflected the ultimate €64 billion cost of the bank bailout). Ireland has a population of less than 1 percent of the EU, and accounts for less than 2 percent of eurozone GDP, but has paid over 41 percent of the losses associated with the Euro-banking crisis.

In return, Ireland got an IMF-style austerity program of the kind traditionally imposed on countries in Africa or Latin America. However, this only served to nail down a previous decision by the Irish government itself to deal with rising budget deficits through draconian cuts to welfare spending and a 15 percent cut in public-sector wages.

Back From the Brink?

The sitting government at this time was a coalition of the Fianna Fáil party and the Irish Greens, whose relatively paltry six parliamentary seats were useful in firming up the government’s majority. Fianna Fáil had been the natural party of government in a structure often characterized as a “two-and-a-half party system.”

The other large party was Fine Gael, and the “half” was the much smaller Irish Labour Party, which was available if needed to make up coalition numbers. The two big parties traced their origins to the opposing sides of the Irish Civil War of the early 1920s. In modern times, however, there have been few substantial differences between them, as they circled each other around a center ground dominated by neoliberalism since the late 1980s.

After signing up to the Troika agreement, the Fianna Fáil–Green coalition collapsed, and an election was called in February 2011. The Irish electorate took its revenge on the two government parties. The Green Party lost all its seats, while Fianna Fáil’s parliamentary representation fell from seventy-seven seats to a rump of twenty. This was a defeat of historic proportions and Fianna Fáil has never regained its formerly dominant position.

Fine Gael and the Labour Party both gained seats and formed a coalition government with the aforementioned Enda Kenny as prime minister and Michael Noonan as minister for finance. Despite the rout of the previous government, policy was unchanged. A faintly center-right Fine Gael was supported by a Labour Party anxious to duplicate the perceived neoliberal success of the Blairite British Labour Party. Both parties set about enthusiastically implementing the Troika program. By 2015, they were claiming credit for rescuing the Irish economy and restoring the growth of its GDP.

Feeling confident, the Fine Gael–Labour government called an election in early 2016. They campaigned under the slogan: “Let’s Keep the Recovery Going.” However, the electorate weren’t buying it, since they weren’t feeling the “recovery” in their own lives.

Myth and Reality

The headline figures for GDP obscured some stark realities. Irish government spending had plunged by 13 percent between 2008 and 2014. Personal consumption expenditure fell almost 7 percent between 2008 and 2012 and, despite some ups and downs, had remained generally stagnant since.

While the level of measured GDP had returned to its pre-crisis level, the same could not be said for employment. In 2015, the number of people employed was 10 percent below its precrisis peak. The official unemployment rate was 9.7 percent, but many people were mistakenly excluded from the labor force and hence not considered to be unemployed. Large numbers of part-time workers were unsuccessfully seeking full-time work.

Adding these people to the ranks of the unemployed would have more than doubled the official figure. Factoring in those who had emigrated to other countries in search of work would increase the figure by another 3–4 percent. Most of these people were in their early twenties.

Michael Noonan tried to pass this off as a youthful “lifestyle choice.” His government had form in the deployment of such rhetoric. The Labour minister of social protection, Joan Burton, was on record suggesting that the practice of claiming welfare benefits had also become a “lifestyle choice” in working-class communities.

Both households and nonfinancial corporations in Ireland had gone heavily into debt in the run-up to the economic crisis. Nonfinancial corporate debt increased 276 percent between 2002 and 2012. Debt taken on by Irish households increased by 218 percent. At its peak, Irish household debt was over 207 percent of disposable income. It is still very high today by international standards.

When the votes were counted in 2016, Fine Gael had lost twenty seats and the Labour Party fared even more poorly, going from its best-ever to its worst-ever performance. Fianna Fáil recovered ground and might have formed a coalition with forces to its left if it been willing to coalesce with Sinn Féin, who had replaced Labour as the third-largest party. It could also have entered government with Fine Gael, which was still the largest party in the Dáil, the Irish parliament.

In both scenarios, Fianna Fáil feared losing its place as the traditional party of Irish republican nationalism. It split the difference by supporting a Fine Gael–led minority administration from outside government. Having effectively lost the election, Fine Gael found itself back in office, this time without the Labour Party, with Enda Kenny still prime minister and Michael Noonan again as minister for finance.

Leprechaun Economics

As Fine Gael was bedding down for another stint in office, the Irish Central Statistics Office published GDP figures for 2015. They showed a leap in Irish production of 26.3 percent. This prompted widespread derision and was quickly dubbed “leprechaun economics” by the noted American economist Paul Krugman.

There was, of course, no way that this figure accurately reflected economic reality. The 2015 results merely underlined the extent to which Irish statistics were deeply distorted by the globalization of Ireland’s economy and, more particularly, by transnational corporate tax-minimization strategies. The relatively low corporate tax rate and a permissive attitude to foreign business make Ireland, despite vehement official denials, a prominent tax haven. It is an offshore island, after all.

These activities can make Ireland’s economy appear larger than it really is in any number of ways. Transfer pricing, where companies charge their Irish subsidiary artificially low prices for inputs and pay excessively high prices for the Irish outputs, makes the Irish operation look bigger while transferring profits to the low-tax location. This was a long-standing practice, along with the now-famous “Double Irish” tax scam, but 2015 also saw several new innovations.

AerCap, the world’s largest independent aircraft-leasing company, moved its entire €35 billion fleet of aircraft to Ireland for tax purposes. Of course, this happened entirely on paper. The planes stayed where they always were. Two major companies conducted corporate tax “inversions.” This is where a large US company moves its headquarters operations to a much smaller Irish subsidiary, so that the Irish company now “owns” its bigger parent, allowing the parent to pay the Irish tax rate on profits.

Apple also had a big role in this story. It took advantage of a newly created tax scam, called the “Green Jersey” because the island tax haven of Jersey was also involved. It involved transferring internal intangible property assets to Ireland and writing off the “cost” against the Irish taxes, driving the already low Irish tax rate towards zero. Apple jumped at the chance in 2015, shifting billions in assets and pumping up Ireland’s measured GDP.

Meanwhile, the European Union was investigating whether Ireland was guilty of giving illegal state aid to Apple when it facilitated Apple’s use of the infamous “Double Irish” tax scheme in ways not available to other tax avoiders. On August 29, 2016, Margrethe Vestager of the European Commission ruled that “Ireland granted illegal tax benefits to Apple.” As a result of these benefits, Apple enjoyed an effective tax rate in Ireland of 0.005 percent in 2014.

Europe decided that Apple owed Ireland an astonishing €13 billion in back taxes. Instead of gratefully pocketing this much-needed sum, the Irish government joined Apple in appealing the judgment. The ubiquitous Michael Noonan saw it as an attack on Ireland’s low corporate tax rate. He channeled his inner Winston Churchill in comments to the Irish media:

I want to say to international investors and to the Irish people that there will be no change to the 12.5 percent. We stand by the treaty. It’s within our competence to, and no bridgehead by any commissioner is going to change that perspective in Ireland. We will fight it at home and abroad and in the courts.

The case is still in the courts, and the €13 billion is gathering dust in an escrow account.

Recovery at Last?

In 2018, employment numbers finally recovered to their 2008 levels. This was widely hailed in the Irish media as a miraculous recovery, a judgment sometimes echoed abroad.

It was true that Ireland was doing better than the deeply dysfunctional eurozone, whose economy has been hog-tied by monetarism and a structurally conservative fiscal policy. Nevertheless, a ten-year recovery period is nothing to write home about. Historically, most recessions are well over after two years. Large segments of the Irish people had also been left behind by this recovery, most particularly the young.

Employment and working conditions for younger workers have not recovered from the financial crisis. Unemployment for those under thirty-five is higher in 2019 than it was in 2006. This is despite the fact that labor force participation rates for those under thirty-five are down substantially. Young people are also more likely to be in some form of precarious employment. About 30 percent of workers under thirty worked part-time in 2019, almost twice the percentage in 2006. More than one in four workers under thirty are on temporary contracts.

Average weekly wages since the financial crisis have risen by less than 8 percent in real terms, while average rents were 36 percent higher over the same period (and 44 percent higher in Dublin). The young are disproportionately renters and few young workers make enough to afford even a modest mortgage in the Irish housing market. Those without a permanent contract are unlikely to qualify for any mortgage. It’s not surprising, then, that nearly half of all twenty-five- to twenty-nine-year-olds lived with their parents in 2017.

Measures of deprivation showing households lacking two or more basic necessities have not recovered since the financial crisis. The share of households in this fix was around 12 percent in 2007. It rose sharply after the crash and was still at 15.1 percent in 2018, before rising again to 17.8 percent in 2019. Workers under the age of thirty-five accounted for the bulk of the increase. There were rising shares of enforced deprivation for renters and vulnerable groups such as single mothers and children.

These figures had dramatic electoral consequences. Sinn Féin was generally considered the winner of the February 2020 election, coming in first with almost 25 percent of the first-preference vote and picking up an additional fifteen seats. Fine Gael lost twelve seats, while the electorate also delivered a negative judgment on Fianna Fáil’s decision to prop up the minority Fine Gael administration. It lost eight seats. The Green Party benefited from the vote for change, picking up ten seats for a total of twelve.

Sinn Féin’s strongest base lay among younger voters. The first poll after the 2016 general election had given the party 16 percent support among people aged eighteen to twenty-four. In the 2020 exit poll, support from voters in the same category had risen to 31.8 percent. Among people aged twenty-five to thirty-four, Sinn Féin enjoyed comparable backing (31.7 percent), and it was also the most popular party with voters aged thirty-five to forty-nine at 22 percent.

After the election, Fine Gael temporarily withdrew from negotiations, challenging the other parties to form a government. Ordinarily, the mathematics would have dictated a Fianna Fáil–Sinn Féin–Green Party coalition, with Fianna Fáil and Sinn Féin rotating the position of taoiseach. But Fianna Fáil leader Micheál Martin refused to countenance a coalition with Sinn Féin, despite support for that option from some of his deputies. Instead, after a period of horse trading, Fianna Fáil finally entered government alongside Fine Gael, with the Green Party making up the numbers.

Fianna Fáil’s Micheál Martin took the first turn as a rotating taoiseach, with Fine Gael’s Leo Varadkar due to pick up the baton in two years. As a result, twelve years after the financial crisis and the earth-shaking political changes it precipitated, Ireland once again ended up with a Fianna Fáil taoiseach supported by Green Party votes. This time, however, the weakened position of the traditional center-right parties required them to set aside their traditional distaste for each other in order to keep Sinn Féin out of government.

Under the COVID-19 Cosh

COVID-19 is now cementing the Irish generational divide. Irish youth are experiencing their second once-in-a-lifetime recession in the space of ten years. While Ireland’s international sector has been surprisingly resilient, the domestic economy has been hard hit, and the downturn has disproportionally hammered the young. Two-thirds of pandemic-related unemployment has affected those under thirty-five.

Young people also bear the brunt of an ongoing housing crisis, stemming from the financial crash and years of reliance on the private sector to build housing. If you are young, you face high rents and high house prices.

This generation is more and more politically mobilized. In recent years, youthful energy helped pass referenda legalizing gay marriage and repealing Ireland’s abortion ban, belying Ireland’s reputation as a culturally conservative country. In the past, high levels of emigration have drained away youthful discontent. But COVID-19 makes this impossible.

When the present uncomfortable coalition comes to an end, Ireland’s centrist political parties will not be forgiven. Support for Fianna Fáil is already collapsing in the polls, squeezed between Fine Gael on the right and Sinn Féin on the left. Sinn Féin is likely to be at the head of the next government.

This means that the political character of Sinn Féin is of great interest. The origins of the party lie in the Northern Irish conflict of the 1970s and ’80s as the political arm of the Provisional Irish Republican Army (IRA). After the IRA cease-fire and the Good Friday Agreement (GFA) of 1998, Sinn Féin rapidly became the overwhelming political choice for the Northern Irish Catholic nationalist community and forms part of the regional government in Belfast.

Eoin Ó Broin, Sinn Féin’s highly impressive housing spokesperson, has recently described its political stance as “left-populist.” This is accurate enough. The other side of its politics is an ongoing commitment to unity between North and South on the island of Ireland. In the Northern Irish context, the call for Irish unity was the political expression of an oppressed sector of the nationalist working class. Following the GFA, which ended the armed conflict, this demand has lost much of its political content, as the nationalist community has been integrated into power-sharing under British rule.

Sinn Féin’s center-right opponents in the Republic of Ireland have used its cross-border nature as an excuse to block the party from participation in government. They claim that party decisions are more heavily influenced by a cadre of veteran republican activists in Belfast than by its elected politicians in the South. This charge is controversial, but in any case, it ignores the fact that the goal of the GFA was precisely to bring these political forces into the electoral arena. Sinn Féin’s internal dynamics are hardly democratic, but this does not distinguish it from any other Irish party.

The key question about a future Sinn Féin–led government in Dublin will be its choice of coalition partners. The Irish electoral left is highly fragmented. Depending on who gets included, there are as many as eight groupings with parliamentary representation aside from Sinn Féin. After the next election, Sinn Féin will likely have the option of coalescing with the rest of the Left, although the fragmented character of these forces will make the construction of such a government challenging.

The party’s other option may be an alliance with a diminished and chastened Fianna Fáil. This may appeal as a more respectable choice to those who prioritize the goal of a united Ireland over the broader left agenda. This choice, if it comes about, will decide the fate of the Irish left for another generation.