The emerald shines again

FROM Joyce to Beckett, Ireland’s best storytellers have often preferred to describe their homeland from other parts of Europe. The latest continental raconteur eager to spin Ireland’s tale is the European Union. Mired in deflation and despair, the EU desperately needs a good news story. And it appears to have found one in the rainy island off its north-west shore. “Congratulations, Ireland!” exclaimed Jyrki Katainen, the new European commissioner for growth and jobs, as he unveiled another miserable set of forecasts for the European economy this week.

While Germany, France and Italy, the biggest economies in the euro zone, look set for a sluggish 2015, at least the Celtic Tiger is roaring again. The commission forecasts Irish GDP growth of 4.6% this year and 3.6% next; others put the figures better still. Unemployment is high but falling. And for champions of the austerity-first approach to public finances, Ireland provides a useful example: after a devastating banking crash that led to a €67 billion ($87 billion) bail-out in November 2010, it underwent a gruelling fiscal consolidation and endured significant wage cuts.

In Ireland itself, however, good cheer is thinner on the ground. Three days before the commission issued its forecasts, over 100,000 people demonstrated across the country against the proposed introduction of charges for water use—an astonishing number for a country of 4.6m with no tradition of mass protest. A day later a poll placed Fine Gael and Fianna Fail, two mainstream parties that have alternated in power ever since 1932, behind Sinn Fein, an anti-austerity party tied to the ex-gunmen of the Irish Republican Army. Support for independents of various stripes also outstripped the big two. Ireland must hold an election by April 2016, and the parliamentary arithmetic may get messy.

To the outsider, this can seem strange. Why, after years of pain, should serious discontent emerge just when things appear to be on the turn? One reason appears to be the government’s incompetent handling of water policy, which follows a string of minor scandals this year. Another is that the headline macroeconomic figures have not yet translated into much wage growth, and there are a lot of former construction workers still struggling to find work. Expectations of improvement after Ireland exited its bail-out nearly a year ago make it harder for the government to justify saddling citizens with additional hardships.

The ire has largely been directed inward: at the banks, the developers and the politicians. Ireland’s crash was so destructive, and so obviously the result of self-inflicted wounds, that the “troika” (the European Central Bank, European Commission and IMF) that supervised its bail-out programme met little resistance—unlike in Greece. Ministers acknowledge that the outsiders provided them with a useful disciplinary framework. They also presented the Fine Gael-led government, which took office three months after the bail-out, with a clear mission: to exit the programme. Indeed, the government has floundered a little since the troika went home; one minister says it might have made sense to seek a fresh electoral mandate at that point.

Still, the unbridled passion for Europe that once burned in Irish breasts—born partly from a desire to demonstrate independence from Britain and partly from the bounty of Brussels’s infrastructure funding—has cooled to something more complicated. Many in Ireland agree with the assessment of Michael Noonan, the finance minister, who says Dublin “took one for the team” in 2010 when it accepted bail-out terms that made senior bank creditors whole. That view was reinforced this week, when it emerged that the ECB had threatened to cut off support to Irish banks if the government failed to ask for a bail-out. A lingering sense that there is one rule for big fish and another for minnows has lately been encouraged by the commission’s apparent tolerance for French and Italian fiscal laxity.

But there is no surer way to win friends than to outperform them. Keen to encourage the Irish example, the fiscal-consolidation crowd have taken to laying on the flattery. In Dublin recently Wolfgang Schäuble, the stern German finance minister, said that he was “jealous” of Ireland’s performance. All this has allowed Ireland to adopt a more transactional approach to its European relationships, with some success. Ireland pushed to pay back the IMF part of its bail-out early to take advantage of cheaper financing elsewhere (something usually banned under the EU’s rules); last month it secured the Bundestag’s agreement.

A little cloud

The need for a poster child is understandable. But Ireland’s economic bounce has more to do with the relative success of the United States and Britain—its biggest export markets—and the structural features of its economy than with the austerity it was obliged to impose. As a small, globalised country with a flexible labour market, a skilled workforce and low taxes, all features that predate the bail-out, Ireland was well placed to respond to higher demand abroad. Pay packets were slashed during the bail-out years, improving competitiveness. There are signs of life on the domestic front, but Ireland’s vast private-debt overhang of over 300% of GDP will crimp demand for a while yet.

Ireland’s newly assembled fan club should tread carefully. Although the country’s prospects look good, it remains unusually exposed to slowdown abroad, not least in the euro zone. The weekend’s protests suggest that the politics of austerity are getting more, not less, complicated. That message is reinforced elsewhere: left-wing populists are piling on support in Spain and Greece, too. Ireland’s multiple transformations of the past 40 years, from backwater to tiger to debt-ridden basket-case to pioneer of recovery, certainly add up to an epic worthy of the literary greats. But it is an Irish story more than it is a European one.

^{Economist.com/blogs/charlemagne}