The Irish are beginning to find out that they are not, perhaps, as good Europeans as they thought they were. In the first 10 years after membership in 1973, funds from the European Community rolled in, especially to the agricultural sector, giving a substantial boost to the economy and transforming rural life.
This phase is now over, with Irish farm prices adjusted to EC levels and the effects of the stricter attitude to agricultural spending becoming all too obvious. In retrospect, the 1984 negotiations on curbing milk production may be seen as a turning-point when Ireland came uncomfortably of age as a community member.
Milk is more important to the Irish economy than that of any other member-state, accounting for 15 per cent of gross domestic product, and Prime Minister Garret FitzGerald was determined that Ireland should not bear a disportionate economic loss by accepting the same production quotas as other countries.
Even though Mr. FitzGerald is an old European hand, it still took a walkout before the other leaders would agree to special treatment for Ireland. The Irish won that battle but realized that they had used a lot of ammunition and that life was going to be tougher in the future than in the past.
One senior opposition politician went so far as to suggest that Ireland should consider associate membership in the community. His remarks were not taken up because most people know there is no alternative to full membership, but Ray McSharry, as a member of the European Parliament and a former agriculture spokesman, knows better than most that in the long term, the proportion of community spending going to agriculture is likely to decline.
Irish Foreign Minister Peter Barry sounded a different warning recently, when talking about moves to integrate the EC into something more like the founding fathers’ ideal of European union. He said that such a development could not be countenanced within the present financial resources of the community.
Ireland benefits more from EC membership, proportionately, than any other member-state, so Irish concern is understandable. It is estimated that transfers from the community represented over 10 per cent of gross national product in 1978-79 mostly to agriculture. The proportion has declined since then but still represents about 6 per cent of GNP.
Irish membership in the community has also contributed substantially to the influx of foreign industry, which is so marked a feature of the economy. Foreign firms, mostly from the United States, now account for roughly a third of manufacturing employment and two- thirds of manufactured exports. The Irish must compete for such investment with other EC states but very few of these firms would have located in Ireland if the republic were not a member.
Over-all numbers employed in manufacturing have declined since membership and a new problem has emerged. The fact is that the linkages between the foreign companies and the national economy are much less than with native firms. Ireland is in the peculiar position of recording spectacular growth in exports (averaging 11 per cent per year in recent years) and industrial output (up 70 per cent since membership) while having a general decline in employment.
Analysts increasingly separate out the foreign firms when examining the Irish economy and find that the indigenous sector has not coped well with EC membership. It displays poor productivity, indifferent marketing and export sales, and an over-all decline in output and employment. Government polices are turning more toward the correction of these problems, rather than luring ever more high- technology foreign companies, although the latter will never be turned away.
Over-optimism about the prospects for the Irish economy may have been one of the reasons governments in the 1970s engaged in the spate of foreign borrowing which is now causing such problems for Ireland. The heavy debt repayments now amount to over 1 per cent of gross national product. The combination of debt repayments and a rising population means that living standards have been stagnant for the past three years, while unemployment has risen steadily and to 17 per cent of the work force. It is estimated that the Irish labor force is growing by about 4 per cent a year, a situation which is unique in the EC.
The economy has been growing, by an estimated 3.8 per cent last year and an expected 4 per cent this year. However, when debt servicing and the repatriation of profits by foreign firms are taken into account, these figures fall to 1.7 per cent and 2.7 per cent increases, respectively, in GNP. This level of growth is not sufficient to give rising living standards or reduced unemployment to a growing Irish population.
The outlook is for little change. Net investment is expected to rise by a little under 4 per cent this year but this hides sharp falls in some sectors with the highest labor content, particularly construction. Consumer spending shows a marked reluctance to grow, despite the hopes of economists that people might start spending again after three years of recession.
The high taxation imposed on incomes and goods in an attempt to correct the public finances has undoubtedly dampened retail spending. Finance Minister Alan Dukes reduced some rates of value added tax in the January budget and abolished the top rate of 35 per cent. This was partly to reduce cross-border purchases in Northern Ireland and partly to boost the economy, but the net effect of the budget was still mildly deflationary.
The Government has had most success in bringing down inflation and the balance of payments deficit. Inflation this year should be about 6 per cent, having reached 20 per cent just three years ago. Ireland showed a record trading surplus in the month of April and, even when debt payments are included, the balance of payments deficit should be about 500 million punt or less than 4 per cent of GNP.
This combination of economic circumstances has made it difficult to produce any marked improvement in the public finances.