The Celtic tiger

Large cats and small countries explained

Small girl strangles tiger, eh?Small girl strangles tiger, eh?

Can you remember the Celtic tiger? This now extinct animal once roamed the financial world unchallenged by any predator. So what happened, what did it eat and why did it die? Well first a quick look backwards. The romantics would have you believe that Ireland has always lived under the yoke of the British. And if you are looking for a nation of romantics then look no further than the Irish. Also, if hyperbole could be exported then the whole Irish population would be fabulously wealthy. Put the two together and you get the foundation of the ongoing theme 'Brits bad, Irish good'. Using this as a platform, umpteen novels and plays have been written and, ironically, some have made the authors rich.

We could call this the proximity theory - as for example Russian and Finland, yes the latter has a right to complain but in the case of the UK and Ireland it is, I think you will agree, a bit different. Here it's a mixed bag, advantages and disadvantages. Has there been a tradition of Finns going to work in Russia? I think not. Likewise did the rouble ever support the markka? Whoops! Showing off again! The markka predates the euro in Finland. The fact is, life was hard in post WW2 Ireland but then so it was in most of Europe and for roughly the same reasons. So the romantics popular presentation of Ireland as an uniquely poor country that beat all the odds on the way to wealth is badly skewed; as the whole of Europe, in the EU or not, has been gaining in wealth since the end of the war.

When prior to adopting the euro in 1999 the Irish used their own currency, the punt, this currency was in reality supported by Sterling. This was an advantage of proximity now forgotten or conveniently overlooked by many. Ireland joined the EU in 1973 and for the Brussels' elite represented both a prize and a problem. For the Irish political class it was exactly the same.

So, first the prize from the Brussels' perspective - the UK has always had an awkward relationship with the EU. Some UK politicians have done very well out of the EU using it as a stepping stone on their career path, Neil Kinnock and Peter Mandelson are typical. Ask yourself, who else would have employed them at such a high rate of pay? For the population of the UK it's always been very different, they tend to be anti-EU. Thus for the Brussels' elite, tempting Ireland away from its relationship with the Brits naturally, but wrongly, portrayed as dependency, was seen as a smart move. It was to be hoped that this would pull the plug on the confidence the UK had in its own currency; that the typical UK citizen would see all the advantages flowing into Ireland and demand to be part of the eurozone. This "come and join us" to the Irish can be thought of as virtual proximity by currency association. The prize for the Irish, the political elite in Dublin in particular, was obvious. To their population they could say "you are now a free nation", while getting their hands on all that lovely subsidy money. And of course this was the disadvantage to the Brussels' elite.

It is well known that corruption is rife in Irish politics. It's a way of life for many in the EU too. No doubt Brussels hoped that they could 'contain' the Irish in this respect, some hope and this was the disadvantage to Brussels. I've spoken to several MEPs about the way the EU works and to the question "who does well out of the EU" they all spoke up for the Irish. So fair credit to the politicians of Dublin who learnt how the system works and how to play it to their advantage. It's true many changes were made within Ireland that helped them appear a modern and viable country. A place not only to do business with but perhaps use as a base for business headquarters, the changes to the way business was taxed is an example here.

But going back to the question above about the Celtic tiger, "what did it eat", one can't but help come to the conclusion that a staple of the diet was EU subsidy money. This just flowed and flowed into Ireland. Proof of this was the angry outburst from French President Sarkozy when at first the Irish refused in their initial referendum to endorse the Lisbon Treaty. Seen from Sarkozy's point of view he was right, the Irish had been "stuffing their faces" at the expense of others. This subsidy money was why the Irish politicians had signed up in the first place, to them there was no disadvantage.

I once got the opportunity to ask a Dublin born banker, now working for a UK bank, questions about the Irish attitude to the EU and its money. The answer was plain and simple, the ordinary people were dazzled by it, while the politicians, business and banking world milked it for all it was worth. In other words it was taking a gamble, and this must have been the position of the EU too. So how funny it is that we now have a situation where bookie and punter alike have lost badly having ignored, or at best miscalculated, the risks involved. For the Irish politician the timing was way out too. It was not a case of Ireland being a unique problem that could be solved easily and we all move on. There were huge financial problems on a global scale so Ireland had to wait in line with, for example, Greece, Portugal and Spain for help. How humbling was this to a free nation?

So, having thrown off association with the British bulldog Ireland now finds itself in a Soviet style bear hug with the EU! It's worth reminding ourselves about the case of Iceland, another small country who thought it could defy banking tradition and make the rules up as it went along. We should also remember that Iceland, not being in the EU so not strapped to the euro, had more room to manoeuvre its way out of trouble.

Perhaps this fact has come to the attention of Alex Salmond. Not so long ago one of his favourite soundbites was "an arc of prosperity". In Salmond's mind this fortuitous curve stretched down from Iceland bounced off the Celtic tiger and so blessed Scotland. Following the problems in Ireland and Iceland as well as the loss of reputation of any bank linked to Scotland this idea is heard no more. However, Salmond liked to tell us this in that screeching voice of his so often that it must have come to the attention of the Brussels' elite; doubly so as he also liked to see himself as the Leader of a 'free' nation. One can imagine the feelings of more sensible people in Brussels, "oh no, not another one"! If Salmond had thought then that EU money could help him on his way to an independent Scotland, he's a fool if he still thinks that way now. No doubt there are still a few Brussels' dreamers who, after a glass or three of strong Belgian beer, wistfully think of an independent Scotland, one with the euro as its currency, putting such pressure upon the population of the UK that they rise up and demand equality!

Well such are the dangers of strong drink! But back to the proximity concept. What would happen if Scotland joined the euro, what are the problems for the UK? Well first we should consider what the terms would be. The days of plenty are over so the benefits would be slim. Perhaps only that warm glow of independence that dazzled the Irish and did not last very long. At that point many a braveheart will wilt and start to count the pennies. England alone would be politically more cohesive so more tending towards EU scepticism. Economically it could be better off too, no tigers to feed!

Footnote - For an Irish view of the crisis see HERE. And for more on Scotland and Alex Salmond see HERE and HERE.