Yesterday Minister Phil Hogan announced that the National Spatial Strategy (NSS) is to be scrapped and replaced by a new policy in about a year’s time.  He said that said the present ‘strategy had failed’ because ‘the gateway and hub cities and towns never received the resources to ensure their development and “nothing has happened” in the ten years since they were designated.’  Continuing that ‘there was no point in having a designation without the resources.’

It is certainly the case that the NSS did not live up to its expectations, despite its promise and intent.  The initiative failed for a number of reasons, of which resourcing is just one.

First, there were flaws in its initial design with respect to the designation of too many hubs and gateways and there were accusations of stroke politics in location selection.

Second, because it was introduced in 2002 it missed its logical initial resourcing stream, the National Development Plan (NDP) 2000-06.  It did underpin the NDP 2007-13, but then the crisis hit and the NDP got quitely dropped and funding for NSS initiatives, such as the gateways fund, was one of the first things the DECLG dropped from its programme.

Third, there was weak political buy-in across the board, especially within government.  This was made abundantely clear by the decentralisation programme introduced by Charlie McCreevy in 2003 that sought to move government departments and state agencies to just about every location except gateways and hubs.  Decentralisation seriously undermined the rationale and impetus of the NSS.

Fourth, the NSS was not put on a statutory basis and up until 2010 planning authorities only had to give ‘due regard’ to it, rather than complying with it.  In a period of developer-led, laissez faire, localist planning this was a license to largely ignore it.

What this meant was a very partial implementation, though the NSS did have some effects on other policy (e.g. NDP, Transport 21, Rural Ireland 2020, etc) and was significantly boosted by the introduction of regional planning guidelines and the Planning and Development Act (2010) and the introduction of core strategies (in which planning decisions have to demonstrate they fit local, county, regional and national policy objectives).

So what happens now? Is this the end of spatial planning in Ireland?

Well one would hope not. If Ireland ever needed a strategic plan to make the most of limited resources in order to facilitate inward investment, stimulate and support indigenous growth, produce sustainable development and create of better places, it is now.

The logic of spatial planning is to align and coordinate sectoral initiatives (such as transport, energy, jobs, property, utilities, communications, public services, etc) across territory in order to leverage complementarities, reduce redundancy and duplication, increase competitiveness, and create multiplier effects (where the sum is greater than the simple addition of parts).  It does this by selectively prioritising areas for different kinds of activities in line with its demographics and local resources and distributing funds suitable to enable targetted investment and coordinating development across sectors.

Rather than abandoning spatial planning and the NSS, we need to do a fundamental rethink and produce a new NSS that is suitable to the present context. Localism and ad-hocism is not the solution to the economic and social crisis and will not create a sustainable, competitive country into the long term.

The challenge over the next year is to produce a new NSS based on a robust evidence base, learning from international best practice, and involving detailed stakeholder consultation, that is strategic and is prepared to make difficult decisions given limited resources.  Once agreed upon, the new NSS needs to be put on a statutory basis, as advocated in the Mahon Report, and it needs to be implemented through a series of interlocking programmes and initiatives.

My hope is that we can rise to this challenge and produce a spatial planning framework that will serve us well.

Rob Kitchin


For a good introduction to the present NSS, see the recent special edition of Administration 60(3), The National Spatial Strategy: Ten Years On, guest edited by David Meredith and Chris van Egeraat.

Revisiting the National Spatial Strategy ten years onDavid Meredith & Chris van Egeraat


The National Spatial Strategy: Rationale, process, performance and prospects – James A. Walsh

Economics – The missing link in the National Spatial Strategy – Edgar Morgenroth

Perspectives on Ireland’s economic geography: An evaluation of spatial structures – David Meredith, Jim Walsh & Ronan Foley

Gateways, hubs and regional specialisation in the National Spatial Strategy – Chris van Egeraat, Proinnsias Breathnach & Declan Curran

Urban specialisation, complementarity and spatial development strategies on the island of Ireland – Des McCafferty, Chris van Egeraat, Justin Gleeson & Brendan Bartley

Governance and the National Spatial Strategy – Placing spatial policy at the heart of the diagonal public service – Séan O’Riordáin

Shrink smarter? Planning for spatial selectivity in population growth in Ireland – Gavin Daly & Rob Kitchin


Today saw the publication of Measuring Ireland’s Progress 2011 by the Central Statistics Office.  Based on 109 indicators, the report provides a fascinating summary of (a) how Ireland has changed over the past decade as it has transitioned from the Celtic Tiger to the crash; (b) a comparison of how Ireland is performing with respect to 32 other European countries.  The full report is here and a short, but detailed, summary is here.

In total, data is provided with respect to 109 indicators covering 10 domains and 49 sub-domains.  I’ve list all these domains, sub-domains and indicators below to illustrate the richness of this resource for making sense of how Ireland was faring economically, socially and environmentally in 2011.  The report is well illustrated with graphs and maps, and provides data in table form.  Well worth a read if you want to get a synoptic overview of the country vis-a-vis the past and our neighbours.

1. Economy

Gross Domestic Product

1.1 Ireland: GDP and GNI
1.2 EU: GDP and GNI at current market prices
1.3 EU: GDP growth rates
1.4 EU: GDP per capita in Purchasing Power Standards

Government debt

1.5 Ireland, EU and Eurozone: General government consolidated gross debt
1.6 EU: General government consolidated gross debt
1.7 EU: General government consolidated gross debt map

Public balance

1.8 EU: Public balance map
1.9 Ireland and Eurozone: Public balance
1.10 EU: Public balance
1.11 Ireland: Central and Local Government current expenditure

Gross fixed capital formation

1.12 Ireland and EU: Gross fixed capital formation
1.13 EU: Gross fixed capital formation

International transactions

1.14 EU: Current account balance
1.15 EU: Direct investment flows

International trade

1.16 EU: Exports of goods and services
1.17 EU: Imports of goods and services

Exchange rates

1.18 International: Bilateral euro exchange rates
1.19 Ireland: Harmonised competitiveness indicator

Harmonised Index of Consumer Prices

1.20 Ireland and EU: Harmonised Index of Consumer Prices
1.21 EU: Harmonised Index of Consumer Prices

Price levels

1.22 Ireland and EU: Comparative price levels of final consumption by private households
including indirect taxes
1.23 EU: Comparative price levels of final consumption by private households including
indirect taxes

2. Innovation and technology

Science and technology

2.1 Ireland: Mathematics, science and technology graduates


2.2 EU: Mathematics, science and technology PhDs awarded

Research and development expenditure

2.3 Ireland and EU: Gross domestic expenditure on R&D
2.4 EU: Gross domestic expenditure on R&D

Patent applications

2.5 Ireland and EU: European Patent Office applications
2.6 EU: European Patent Office applications

Household Internet access

2.7 Ireland: Private households with a computer connected to the Internet
2.8 EU: Private households with Internet access

3. Employment and unemployment

Employment rate

3.1 Ireland: Employment rates by sex
3.2 EU: Employment rates by sex

Labour productivity

3.3 Ireland: GDP in Purchasing Power Standards per hour worked and per person employed
3.4 EU: GDP in Purchasing Power Standards per person employed

Unemployment rate

3.5 Ireland and EU: Unemployment rates
3.6 EU: Unemployment rates by sex
3.7 Ireland and EU: Long-term unemployment rates
3.8 EU: Long-term unemployment rates by sex

Jobless households

3.9 Ireland: Population aged 18-59 living in jobless households
3.10 EU: Population aged 18-59 living in jobless households

Older workers

3.11 EU: Employment rate of persons aged 55-64 by sex

4. Social cohesion

Social protection expenditure

4.1 Ireland and EU: Social protection expenditure
4.2 EU: Social protection expenditure in Purchasing Power Parities per capita
4.3 EU: Social protection expenditure by type

Risk of poverty

4.4 EU: At risk of poverty rates
4.5 Ireland: At risk of poverty rates by age and sex
4.6 Ireland: Persons in consistent poverty by age and sex
4.7 Ireland: Persons in consistent poverty by principal economic status

Gender pay gap

4.8 EU: Gender pay gap

Voter turnout

4.9 Ireland: Numbers voting in Dáil elections
4.10 EU: Votes recorded at national parliamentary elections

Official development assistance

4.11 Ireland: Net official development assistance
4.12 EU: Net official development assistance

5. Education

Education expenditure

5.1 Ireland: Real current public expenditure on education
5.2 Ireland: Student numbers by level
5.3 EU: Public expenditure on education

Pupil-teacher ratio

5.4 EU: Ratio of students to teachers
5.5 EU: Primary and lower secondary average class size

Third-level education

5.6 Ireland: Persons aged 25-34 with third-level education
5.7 EU: Persons aged 25-34 with third-level education by sex


5.8 Ireland: Student performance on the reading, mathematical and scientific literacy

scales by sex

5.9 EU: Student performance on the reading, mathematical and scientific literacy scales

Early school leavers

5.10 Ireland: Early school leavers by labour force status and sex
5.11 Ireland: Proportion of the population aged 20-64 with at least upper secondary education
5.12 EU: Early school leavers

6. Health

Health care expenditure

6.1 Ireland: Current public expenditure on health care
6.2 EU: Total expenditure on health as percentage of GDP

Life expectancy

6.3 Ireland: Life expectancy at birth and at age 65 by sex
6.4 EU: Life expectancy at birth by sex

7. Population

Population distribution

7.1 Ireland: Population distribution by age group
7.2 Ireland: Household composition
7.3 EU: Population
7.4 EU: Population change


7.5 Ireland: Migration and natural increase
7.6 Ireland: Immigration by country of origin
7.7 Ireland and EU: Rate of natural increase of population
Age of population 7.8 Ireland: Age dependency ratio
7.9 EU: Young and old as proportion of population aged 15-64


7.10 Ireland and EU: Total fertility rate
7.11 EU: Total fertility rate

Lone parent families

7.12 Ireland: Lone parent families with children aged under 20 by sex of parent

Living alone

7.13 Ireland: Persons aged 65 and over living alone by sex


7.14 EU: Divorce rate

8. Housing

Dwelling completions

8.1 Ireland: Dwellings completed
8.2 Ireland: Nature of occupancy of private households


8.3 Ireland: Housing loans paid
8.4 Eurozone: Interest rates for household mortgages (new business)

9. Crime

Recorded crimes and detection

9.1 Ireland: Recorded crimes by type of offence rates

9.2 Ireland: Detection rates for recorded crimes

Recorded incidents

9.3 Ireland: Recorded incidents of driving/in charge of a vehicle while over legal alcohol
limit per 100,000 population
9.4 Ireland: Recorded incidents of burglary per 100,000 population
9.5 Ireland: Recorded incidents of controlled drug offences per 100,000 population


9.6 Ireland: Recorded victims of murder/manslaughter

10. Environment

Greenhouse gases

10.1 Ireland: Total net greenhouse gas emissions
10.2 EU: Net greenhouse gas emissions and Kyoto 2008-2012 target

Energy intensity of economy

10.3 Ireland: Gross inland consumption of energy divided by GDP
10.4 EU: Gross inland consumption of energy divided by GDP

River water quality

10.5 Ireland: River water quality

Urban air quality

10.6 Ireland: Particulate matter in urban areas

Acid rain precursors

10.7 Ireland: Acid rain precursor emissions

Waste management

10.8 Ireland: Total municipal waste generated, recovered and landfilled
10.9 EU: Municipal waste generated and treated


10.10 Ireland: Private cars under current licence
10.11 EU: Passenger cars per 1,000 population aged 15 and over
10.12 Ireland and EU: Share of road transport in total inland freight transport
10.13 EU: Share of road transport in total inland freight transport
10.14 Ireland and EU: Index of inland freight transport volume
10.15 EU: Index of inland freight transport volume


Rob Kitchin

I’ve put together a set of data visualisations that collectively tell the story of the crisis in Ireland.  The slideshow below (click the 4 arrow symbol to enlarge) or the PDF accessed through this link provides graphs, maps and tables with respect to the following data drawn from a variety of sources including the CSO, Central Bank, NTMA, ESRI, DECLG, EU:

GDP constant prices 2006-11

GNP constant prices 2006-11

Government expenditure 2006-11

Gross government debt 2006-11

General government debt 2000-2011

General government balance 2000-2011

Government revenue and spending 2002-12

Breakdown of government revenue and spending 2012

Budget adjustments 2008-2015

Troika bailout

Actual and contingent government debt 2011

Cost of the bank bailout per capita

Investment as a %GDP 1970-2010

Personal consumption expenditure 2006-11

Consumer price index 2007-12

Export of goods 2007-12

Import of goods 2007-12

Retail sales index 2007-12

New private cars licensed 2007-12

Numbers in employment 2007-11

Numbers on the Live Register 2007-12

Unemployment rate 2007-12

Average weekly earnings 2008-12

Household net worth 2004-12

Household debt 2004-12

Mortgage arrears 2009-12

Residential property prices 2007-12

Housing completions 1993-2011

Housing completions in Upper Shannon Rural Renewal Scheme 1970-2011

Mortgage volumes 2005-2012

Housing vacancy per ED 2011

Unfinished estates 2011

Tax revenue from property 2002-2011

Distribution of larger debtors in NAMA

I’d be grateful to know about other useful data visualisations – please provide a link the comment box below.

Rob Kitchin

For those of us contributing to social commentary at present there is a constant tension between the incessant streams of bad news it seems we are all confronted with daily and a desire to avoid portraying contemporary Ireland as in the midst of ineluctable apocalypse.  We know there is a sun somewhere behind all those clouds but sometimes it’s just so hard to see.  If we are to take Brian Cowen’s point of view, all the naysayers pointing out the nation’s ills are not acting in the interests of the country or any sort of economic recovery.  This perspective is far from constructive in that it tries to hide Ireland’s problems behind what amounts to a net-curtain of artifice.  Hard times, in a variety of manifestations and degrees of severity, are simply a reality for the majority of the population at the moment.

An article in today’s Guardian paints this picture of this latent despair rather aptly.  Without being overly sensationalist it offers a series of snapshots of some of the ways people’s economic and emotional wellbeing has been challenged by the recession.  More than exhibiting trenchant anger, these vignettes suggest a deeper sense of melancholy disillusionment at the way the country has turned out, and the injustice of the Government’s handling of the situation.

As much of the discussion on this blog has suggested, the crash has literally trapped many people in negative equity, on ghost estates, in places where the lives they constructed have crumbled or stand on the precipice of doing so.  They have been stuck in place, imprisoned by the banks in an economic quicksand.

The crash has affected more people than those in heavy mortgage debt, however. There is a whole generation of young people who are emerging into maturity in a country that seems to have sold their future out from under them.  One of those interviewed for the Guardian piece expressed quite succinctly what I think is a common feeling of hopelessness.  Explaining why he was considering emigration he suggested

“I know we are the country’s future but at the same time why should we stay and pay for someone else’s mess?”

This sense of loss has been keenly felt by young people.  For those swaths of society exiting school and college it seems like they have been denied a chance at building a life for themselves in their own country.  In contrast to those who have been almost forcibly stuck to place, many others are being denied their homeplace.  Ireland has been here before during the 1980s, when emigration was almost a necessity, especially for high-skilled labour.  This situation is creeping back into the everyday language of the youth.  A couple of years ago in Ireland emigration was a choice that an individual made.  Now there is a sense that it will again become a choice that is made for us.  Nor is this sense of disillusion confined to the indigenous Irish.  The same fears are undoubtedly felt by many others who have come to Ireland and set up lives for themselves.  Many people I talk to now have emigration in their mind as a definite possibility.

Ireland’s longstanding history of emigration was reversed during the boom.  For the young people currently in the labour market it finally felt like a life of your choosing could be made in Ireland, that you wouldn’t have to start anew, that you wouldn’t have to leave behind friends and family to do it.  Now these ghosts that we thought were gone have returned, spectres of an all too recent past come to haunt the freshly killed dreams of the youth.  We hear all the time about the necessity to build a knowledge economy, yet Ireland is complacently slipping into brain drain mode once again.  We can debate the economic sense of the decisions currently being made about who is saved from the Celtic Tiger wreck and who is not.  What is clear I think is that the outcomes of these decisions are going to be more than financial; they will be emotional and psychological and open up wounds that may never fully heal.

As for seeing the sun through the clouds of despair, it is not just a case of looking on the financial bright side.  Of course there is still much joy and love in people’s lives; the despair is not all encompassing by any means.  But to stare down the country as it stands, I think, necessitates that we feel this disillusionment.  As Bonnie Prince Billy once sang , “I wake up and I’m fine, with my dreaming still on my mind, but it don’t take long you see, for the demons to come and visit me”.

Cian O’ Callaghan

(with Rob Kitchin)

Former Minister for Finance Charlie McCreevy conjured up his own epitaph when he uttered the now legendary description of his budgetary tactics that went something like “When I have it, I spend it and when I don’t, I don’t”.  This phrase has become somewhat folkloric.  Its attribution is cited as sometime in the mid 2000s and the exact wording changes depending on the telling.  It is a tale of legendary negligence, a legitimation of the burn after earning that characterised the production of Celtic Tiger wealth.  It was a warning sign of the inevitability of hard times to come that we mostly chose to ignore.

McCreevy’s comment is iconic of the era in which it was uttered.  During the Celtic Tiger period a collective consciousness was arguably created in which most of us believed in the myth of eternal economic growth (or if we didn’t, we at least did not think about the consequences of collapse so often).  In a way the Government had convinced people that they didn’t really need state support.  On some level we all knew that the Government were squandering the tax intake but it didn’t somehow seem essential to (most of) our daily lives.  We were producing our own wealth, creating our own opportunities.  They had pulled off the neoliberal trick of convincing the country that it wanted less and not more state intervention.  And this produced new types of citizens.  In the space of a generation the Irish had gone from a people that saved before they bought, questioned any extravagance, and were wary of debt, to a nation only too happy to blow their paycheque on nights out, put the bills on the credit card, and become sodden in debt to buy their dream home and all the trimmings in one go.  For a long time the Irish had been a people who simply didn’t have it to spend.  Now that we had it, by god we were going to spend it.

This attitude was actively encouraged by the Government in almost everything they did.  They transferred the tax burden to assets, property in particular, and talked up the property market at every turn, encouraging people to buy, buy, buy.  They generated an economy based on consumption and called it growth, and they dealt in macro-economic statistics to obscure the uneven and precarious nature of this ‘expansion’.  (more…)


The Irish Times - Front Page - 29/09/10


One of the headlines of the Irish Times today (29 September 2010) reads: “Ireland will not need emergency funding, says EU commissioner.” That’s according to Olli Rehn, European Economics commissioner, who does not foresee the need for the Irish government to seek emergency financial aid from supranational institutions such as the EU or the IMF to rebuild the international investors’ confidence in the country.  An optimism shared by Taoiseach Brian Cowen who also dismissed the idea yesterday that Ireland will need to resort to external financial help to sort out its economy. So Ireland does not appear in such a bad situation from the EU standpoint, compared to, say, Greece or Spain, for example.

That may not be the case for long if we are to judge by another headline of today’s Irish Times (ironically placed right next to the other one cited above on the printed edition – see on the right-hand side) which warns that “Anglo Irish ‘worst case’ bill may top €30bn.” I thought the ‘worst case’ scenario was a €20bn bill, or maybe it was €25bn? My confusion probably comes from the fact this figure (and others) keeps changing, and seems to be always on the rise. So can we take that €30bn seriously? In the same Irish Times article, financial correspondent Simon Carswell points out that “this will meet minimum capital rules up to the end of 2012 but the banks may need more capital beyond this date should losses rise.” How and where would we find more capitalat that point? More bonds? But how can we afford issuing more government bonds when interest rates on 10-year bonds have already risen close to 7%? So, I wonder, can we completely dismiss the idea that Ireland may need to seek help from the EU and/or the IMF at some point?

Delphine Ancien

In Part 1 of this paper, data were presented which contradicted the widely-held view that Ireland experienced a sharp loss of export competitiveness vis-à-vis its main trading partners over the period 2000-2007.  Ireland actually increased its share of total world exports (albeit marginally) in this period and did better in this respect than seven of Ireland’s twelve main trading partners.  In terms of share of global services exports, Ireland’s powerful performance easily surpassed all twelve main trading partners and, while Ireland’s performance with respect to merchandise exports was poor, it was still superior to that of Ireland’s two leading trading partners, the UK and USA, as well as Japan.

Part 2 of the paper showed that, while economy-wide unit labour costs in Ireland rose more rapidly than in Ireland’s main trading partners in the period 2000-2007, this did not have the negative impact on Ireland’s export competitiveness which has bee postulated by economic commentators because unit labour costs in both the export manufacturing and export services sectors moved in the opposite direction.  While this was associated with a rapid rise in services exports (and might have been in the case of manufacturing exports were it not for the intrusion of several extraneous factors which had a particularly negative impact on Ireland’s merchandise exports), this should not be construed as establishing a causal link between trends in labour costs and trends in export performance.  An examination of the cost structure of Ireland’s main manufacturing export sectors revealed that not only was there was no link between the proportion of total costs accounted for by labour costs and employment change in these sectors, but that labour costs in general account for a low proportion of costs in the sectors in question (as is also the case with export services).

The third and final part of this paper reviews a number of alternative approaches to assessing national export competitiveness which are much more complex and sophisticated than the simplistic – and erroneous – reduction of competitiveness to international differences in unit labour costs.  These alternative approaches generally portray Ireland’s competitiveness position in a much more favourable light than has become the norm in public discourse of the topic in Ireland.  The paper then raises the possibility that the application of any kind of competitiveness measures to Ireland may be futile due to the high proportion of Irish exports which go into non-competitive markets.  The paper concludes by contrasting the calls by leading foreign industrialists for greater investment in productivity-enhancing education and research & development as the key to enhancing Ireland’s future competitiveness with the narrow preoccupation of Irish economic commentators with labour cost reduction.  Given the influence these commentators have in the policy-making arena, this preoccupation, and associated government spending cuts, could do profound long-term damage to Ireland’s ability to compete in the high-value-added export markets which are essential if Ireland is to sustain its position as a high-income economy.

Alternative approaches to measuring export competitiveness

The recent reports of the National Competitiveness Council (NCC) have tended to downplay, or ignore altogether, the role of labour costs as a factor in assessing  Ireland’s export competitiveness.  Of the 18 different indicators which the NCC uses for this purpose, just one relates to labour costs and productivity.  This downplaying of labour costs – which is entirely justified on the basis of the evidence presented in this paper – gave rise to an extraordinary and quite outrageous attack on the professional integrity of the NCC staff and advisors by Garret Fitzgerald in the Irish Times on January 30 last.  Taking umbrage at the NCC’s failure in its most recent reports to highlight the issue of labour costs which he sees as central to Ireland’s purported loss of competitiveness, Fitzgerald suggested that this might be due to the NCC staff who wrote these reports being inhibited by the presence on the NCC board of members (trade unionists, civil servants) who might have had “difficulties” with an analysis which highlighted the role of wage costs in Ireland’s supposed loss of competitiveness in recent years.

In this context, it is worth looking at the Global Competitiveness Index (GCI) published annually by the World Economic Forum (WEF), the Swiss-based independent think-tank.  The GCI was devised by, and is compiled under the supervision of, Michael Porter of Harvard University, one of the world’s foremost authorities on international competitiveness and author of the path-breaking book The competitive advantage of nations (1990).

The complex and thoughtful methodology employed by the WEF in constructing the GCI contrasts sharply with the simplistic perspective on this issue held by so many Irish economists and politicians.  In its Global competitiveness report for 2008-09, the WEF employed no less than 113 different  indicators in measuring the GCI for 134 different countries.  These comprise a mix of quantitative data derived from official sources, and qualitative data relating to assessments of various aspects of the business environment in each of the subject countries obtained from some 12,294 business leaders and analysts from around the world (including 59 from Ireland).  These 113 indicators are divided into twelve “pillars” of competitiveness (institutions, infrastructure, education, financial markets, etc.).

The relative weights given to these indicators vary depending on each country’s level of development.  In the WEF’s view, competition based on cost is only appropriate for countries at a low level of development, for whom cheap labour or resources are frequently their only source of competitive advantage.  For countries at an intermediate level of development, the keys to competitiveness are production efficiency and product quality, while for countries at the highest development levels, the key factor is the ability to produce new and different products employing cutting-edge production processes.  In the system of weightings applied to this group of countries (in which the WEF places Ireland), labour cost factors account for just 1.7% of the total value of the competitiveness index.

Contrary to the view of most Irish economic commentators, the GCI actually saw Ireland’s competitiveness improving throughout most of the 2000s, reflected in movement from 30th position in 2002 to 22nd in 2009.  In its country report on Ireland for 2008-09, the WEF identified Ireland’s key competitiveness weakness as lying in infrastructure, along with small market size and the country’s current macroeconomic stability problems.  Labour costs were not mentioned.

Ireland has done even better in a number of other recent international rankings related to competitiveness.  In its report for 2010, the World Bank’s annual Doing Business survey placed Ireland 7th out of 183 countries in terms of ease of doing business (labour costs are not among the 40 variables used in compiling the table).  The IBM Global Location Annual Report ranked Ireland as the most successful country in the world for attracting foreign investment in 2009 when measured by jobs per 100,000 population, up from 10th position the previous year.  The Lisbon Council’s European Jobs and Growth monitor ranked Ireland as the second most competitive economy in Europe in 2008, up from fourth place in 2007, while the London-based Centre for European Reform ranked Ireland as the sixth most competitive economy out of the 27 EU states in 2008, two places higher than in 2007.  All of these bodies employ a range of criteria in composing their rankings.

How competitive are Ireland’s export markets?

A final key factor relating to Ireland’s export competitiveness is the fact that, to a very large extent, the markets served by Ireland’s exports are not competitive at all.  For a start, a large proportion of Irish merchandise exports consists of intermediate goods destined for further processing, frequently by other branches of the Irish-based firms in question.  According to UN trade data, Ireland’s ten largest four-digit export sectors accounted for almost 60% of Ireland’s merchandise exports in 2007, and over half of the value of these sectors’ exports consisted of intermediate products (e.g. chemical compounds, electronic components, drink concentrates).

In total, over half of Ireland’s merchandise exports arise in the chemicals and pharmaceuticals sector which is dominated globally by a relatively small number of major multinationals (most of which have an Irish presence).  Due to their sheer size and control of patents, these firms do not operate in truly competitive markets and tend to be highly profitable – profits as a percentage of revenues for pharmaceuticals firms in the US Fortune 500, on average, are typically 4-5 times greater than for other firms (expenditure on R&D goes nowhere near explaining the difference).  This high profitabilitty makes Ireland’s low corporation tax rate very attractive while making the firms in question less concerned about costs than in more competitive sectors.

Oligopoly is also a feature of other Irish export sectors.  Microsoft (whose main Irish subsidiary had a turnover of €11.3bn in the year to June 2008 – the equivalent of 7.5% of Ireland’s total exports in this period) is an obvious example, with profits amounting to 30% of revenues in 2008, over six times the average for Fortune 500 firms (the profit margin on Windows and Microsoft Office is reputedly of the order of 80%).  Google, whose Irish operation has enjoyed spectacular growth since it was established in 2003, had a 2008 profit rate which was only slightly less than Microsoft’s.

Apart from oligopolised markets, a large proportion of foreign-owned operations in Ireland are largely involved in providing services to other units of their parent companies – they are not selling in open markets.  This applies to units engaged in R&D and software development for their parent firms or providing centralised support services for affiliate units elsewhere in Europe and adjoining regions, and to IFSC operations providing insurance and treasury management services to affiliates.  It is impossible to quantify the extent of such activities, but they certainly make up a substantial proportion of service exports which in 2008 accounted for 42% of total exports.

Productivity and competitiveness

This is not to say that foreign firms operating in Ireland are unconcerned about their operating costs here.  However, their approach to this issue is very different from that of Irish economists.  Real labour costs are made up of two components – levels of remuneration (including social security payments) and productivity levels.  Where productivity rises more quickly than remuneration rates, real unit labour costs fall.  High relative productivity explains why the countries with the highest pay rates in the world also possess the world’s most competitive economies.  While Irish economists have focused on wage reductions as the key to lowering labour costs, foreign companies operating in Ireland have been emphasising the need to raise productivity.

Thus, speaking at the announcement by ABB of an expansion of their Irish operations in 2003, company vice-president Dinesh Paliwal said “It is not low costs that attracts international companies to invest in certain countries. It is high productivity, quality and innovation that are crucial to their decision – and Ireland clearly stands out in these areas” (IDA Ireland: Business Ireland 2003 No 3).  Similarly, in an Irish Times article on July 4, 2008, Paul Rellis, General Manager of Microsoft Ireland and then President of the American Chamber of Commerce in Ireland wrote: “We need to add value faster than we add costs…Faster productivity growth provides the clearest route to higher living standards in the future – the time is now appropriate to design and implement clear and co-ordinated policies that will quicken productivity growth in the years ahead”.

Other leading American industrialists have recently gone further in spelling out what Ireland needs to do in order to strengthen its position as a location for export activities.  Writing in the Irish Times on September 17 last, Martin Murphy, Managing Director of Hewlett Packard Ireland, called for the formulation of a national industrial strategy focused on the creation of an enterprise culture and education system capable of making Ireland “a global hub for knowledge, innovation and know-how” characterised by enterprises built on high-quality and high value-added exports of goods and services.  Murphy pointedly added: “Competitiveness will not be achieved by cutting costs alone. We have to also deliver a better service at a lower cost through innovation.”

These ideas were echoed by Craig Barrett, former Chairman of Intel Corporation, in an address to the Royal Irish Academy in February of this year.  Decrying the notion that Ireland could recreate the Celtic Tiger by simply cutting costs, Barrett emphasised the need to concentrate on the creation of value-added jobs requiring major increases in investment in education and research & development (R&D).  Expanding on this theme in a subsequent interview in the Irish Times (February 12, 2010), Barrett argued that in the modern global economy, “the only ways you compete are in the new industries, the value-added jobs where intelligence and training and skills are important”,

The need for increased investment in education and R&D was also the focus of an article in the Irish Times on November 13 last by Jim O’Hara, General Manager of Intel Ireland, Ireland’s largest industrial employer.  The thrust of O’Hara’s argument is encapsulated in just two pithy sentences: “Unless there is the foundation of a highly educated workforce and an internationally recognised commitment to and reputation for research and innovation, Ireland will not be considered competitive… We must have a world-class, digitally connected education system and a clear government strategy across all four levels of education and on into lifelong learning.”


Clearly these arguments by key industrial leaders at the coalface of the global market place have had minimal impact on the economics profession, many of whose practitioners act as key government advisors and shapers of public opinion.  Their focus on cost minimisation is reflected in across-the-board cuts which are having a devastating impact on Ireland’s education system at a time when the need for expanded investment in this system was never greater.  A continued preoccupation with cutting labour costs will have little impact on the competitiveness of our existing export sector in the short term, but will inevitably undermine Ireland’s ability to create and maintain an innovative, high-productivity and high-income economy in the long run.  In the short run, the main beneficiaries of a policy of labour cost reduction will be the owners of small, labour-intensive, low-tech indigenous firms operating in sheltered (and frequently cartelised) business sectors.  In the long run, even these firms will find that it is not in their best interests to simultaneously reduce the incomes and spending power of most of their customers.

Proinnsias Breathnach

Yesterday 785 workers were told they may lose their job at Pfizer. This time the job losses are occurring in a sector that was generally believed to be relatively insulated from the effects of the global recession. Should we worry? I would say yes, if it was only for the fact that yesterday’s announcement is just the first step in a larger Pfizer restructuring programme. Last year, at the time of the mega-merger with Wyeth, the company announced that this restructuring programme will involve 19,000 job cuts. Yesterday’s announcement dealt with 6,000 of these. So far, the company has evaluated the sites that manufacture injectables, solid dose, biotechnology medicines and consumer health care. The evaluation of the active ingredient sites, of which Cork also has a few, is still to come. These are the sites that employ the most highly skilled workers.

But there are other reasons to worry, not only for Pfizer workers but for Pharma workers in general. Tánaiste Mary Coughlan has told the Dáil that the job losses at Pfizer have nothing to do with the Irish economy, but were caused by the overcapacity generated by the company’s merger with Wyeth. On the face of it, the Pfizer job losses could be interpreted as a one-off global restructuring of a company that faces over-capacity due to recent merger activity.  However, I believe we are dealing with a more structural issue here. The Pfizer global restructuring is partly driven by a lack of new products to replace a number of blockbuster drugs that are coming off patent. The first one, in 2011, is Lipitor but the next one, Viagra, is not far behind.  Think about it: Loughbeg, one of the plants to be closed, was the global manufacturing site of  Lipitor. Loughbeg  manufactures all of the active pharmaceutical ingredients (the few micrograms of substance with the actual pharmacological effect) and eighty per cent of the formulation (the actual tablet) in Ireland.

Mr. Ricciardi, Pfizer’s global manufacturing president, is quoted saying that “we are not announcing closures, we’re announcing exits”, citing hopes that Pfizer will be able to sell some of the plants to other pharma companies. But what if other companies are starting to develop similar plans for “exits”? Pfizer is not alone. Many other companies are facing the drying up of their drug pipelines with little to replace the blockbuster drugs. Companies are frantically looking for replacement drugs. However, chemical synthesis, the core capability of the traditional big pharma companies is reaching its limits for new drug development. Many diseases will require large molecule drugs that are too complex to produce via chemical synthesis. The hope is that the biopharmaceutical subsector will be able to fill the gap. The IDA has acted with their usual great foresight and has very successfully attracted a number of large biopharmaceutical plants to Ireland. The problem is that this may not create enough jobs to offset the losses in the chemical synthesis subsector and the skills requirements of the two subsectors are different.

From 2011 a lot of drugs come off patent and this will have a big impact on the industry in Ireland. The current value of export is 44 bn. 26% of that is patent protected. It is improbable that this will continue to be manufactured in Ireland. This market will be taken over by specialized generics companies, many of which are located in India. Research undetaken by Frank Barry (TCD) and I shows that local subsidiaries in Ireland and their parent companies have started planning for this over the years. The local plants have changed their role in the global production networks, developing into strategic launch plants and flexible multi-product plants, capable of producing niche-products and the downstream, higher value added elements of the synthesis cycle. An increasing number of companies are beginning to outsource the early, less skill intensive, steps of the active ingredient synthesis cycle to fine chemical companies. Very few processes are outsourced to companies in Ireland. Pharma companies are increasingly using low-cost suppliers in India and China. Until now Pharma companies remain hesitant to outsource the later stage synthesis to companies in India and China, doubting whether these companies have the requisite technical knowledge and can meet the health and safety standards required to supply the highly regulated EU, Japanese and North American markets. This perception is changing, however.

Ireland`s rapidly rising wage levels of the Celtic Tiger era provided an extra incentive to use the Irish facilities for the higher value added elements in the manufacturing chain, notably for new product introductions and late stage synthesis. In principle, such upgrading activity is a healthy development. But this will be of little comfort to the Pfizer and pharma workers affected. I would worry.

Chris van Egeraat

In Part 1 of this paper, data were presented which contradicted the widely-held view that Ireland experienced a sharp loss of export competitiveness vis-à-vis its main trading partners over the period 2000-2007.  Ireland actually increased its share of total world exports (albeit marginally) in this period and did better in this respect than seven of Ireland’s twelve main trading partners.  In terms of share of global services exports, Ireland’s powerful performance easily surpassed all twelve main trading partners and, while Ireland’s performance with respect to merchandise exports was poor, it was still superior to that of Ireland’s two leading trading partners, the UK and USA, as well as Japan.

Part 2 of this paper interrogates two further myths relating to Ireland’s export competitiveness i.e. that rising unit labour costs negatively impacted on Ireland’s export competitiveness in the period after 2000 (thereby bringing about Ireland’s postulated loss of competitiveness in this period) and that labour costs are a key determinant of Ireland’s export competitiveness.  However, initially some explanations for Ireland’s loss of market share in global merchandise exports in the 2000s are advanced  – explanations which have nothing to do with trends in labour costs within Ireland.

Explaining Ireland’s loss of market share in merchandise exports 2000-2007

Some special factors contributed to Ireland’s loss of share of global merchandise exports between 2000-2007.  One of these was the rapid rise in the prices of minerals and fuels in this period which boosted the global market share of countries with high relative endowments in these natural resources at the expense of countries, like Ireland, with low natural resource endowments.  Between 2000-2007, the share of global merchandise exports taken by Fuels & Mining Products rose from 13.3% to 19.0%.  By contrast, the share of Ireland’s merchandise exports accounted for by Fuels & Mining Products was just 1.3% in 2000 and 2.3% in 2007.  Thus, even if there had been no change in the technical efficiency of the Irish export sector during the period, Ireland would still have lost market share due to its relative underdowment in a subsector with a substantial and rapidly rising global market share.

A second contributory factor to Ireland’s loss of global market share in merchandise exports was the knock-on impact of the collapse in 2000-2001 of the so-called “ bubble” on the Office and Telecommunications Equipment (OTE) sector, upon which Ireland has had a heavy export dependence.  This was reflected in a fall in the share of global merchandise exports taken by the OTE sector from 15.0% in 2000 to 10.9% in 2007.  This sector alone accounted for one third of Ireland’s merchandise exports in 2000, according to WTO data.  In this case Ireland was penalised for an overdependence on a subsector which experienced a sharp reduction in global demand for reasons over which the Irish economy had no control.

A third factor which contributed significantly to Ireland’s loss of global market share in merchandise exports in the period 2000-2007 was the emergence, in this period, of China as a major competitor, again in the OTE sector. In 2000 China accounted for 4.5% of global OTE exports, but by 2007 this had jumped to 22.9%.  Within the OTE sector, China’s rise was particularly pronounced in the Data Processing & Office Equipment (DPOE) subsector (global share up from 5.0% to 30.3% between 2000-2007) which accounted for over two thirds of Ireland’s OTE exports in 2000.

The key factor here was China’s very low cost base in what is a highly-competitive industry, a factor which affected most western economies as much as – if not more than – Ireland.  Table 4 shows the global share of DPOE exports taken by Ireland and its main trading partners in 2000 & 2007.  This shows that the loss of global market share by Ireland’s main trading partners (excluding China) combined was almost as large as Ireland’s, with seven of the eleven comparator countries experiencing more sharp declines than Ireland while there is evidence to suggest that, in the case of two of the three countries which show a rise in market share (Germany and the Netherlands), this was at least partially due to re-exports from these countries of products originally imported from China.  Thus, Ireland’s loss of market share in this sector cannot be attributed to rising costs (including labour costs) relative to Ireland’s main trading partners, but to the emergence of a new competitor with a cost base profoudnly below those prevailing in the western economies in general.

The role of labour costs in Ireland’s export competitiveness

Our argument, therefore, is that, to a significant extent, Ireland’s loss of global market share in merchandise exports in the period 2000-2007 was due to external developments over which Ireland had no control but which had a disproportionate impact on Ireland’s export performance.  By contrast, the evidence suggests that changes in relative labour costs – the factor identified by most economic commentators as being responsible for Ireland’s purported loss of export competitiveness – had little if anything to do with Ireland’s export performance over the last decade.  While most public pronouncements by economic commentators do not state the sources they are using for their assertions that Ireland has been losing export competitiveness and that this is attributable to rising labour costs, it is assumed that the key sources concerned are publications of the ESRI and the Central Bank which routinely repeat these assertions.

Table 4: Share of global exports of Data Processing & Office Equipment (%)

2000 2007 2007 as % 2000
Belgium 1.19 0.93 77.9
France 2.73 1.57 57.4
Germany 4.63 5.95 128.6
Italy 0.88 0.43 49.0
Japan 9.46 4.54 48.0
Netherlands 7.41 8.83 119.2
Spain 0.50 0.25 49.3
Sweden 0.20 0.48 234.0
Switzerland 0.37 0.19 52.4
United Kingdom 5.92 2.45 41.3
United States 15.48 8.64 55.8
11 Trading Partners 48.78 34.26 70.2
Ireland 4.70 3.15 67.0
China 5.01 30.28 604.5


Source: WTO

An interesting fact about most of these pronouncements – and indeed many academic papers on the topic – is the absence of any factual data to demonstrate that Ireland has actually been losing competitiveness.  Most commentators appear happy to assume that if Irish labour costs are rising faster than our competitors, then Ireland must be losing competitiveness.

One commentator who has been stating his sources on labour cost trends and who has been presenting data on trade performance to demonstrate what he considers to be the consequences of these trends is Garret Fitzgerald.  In his Irish Times columns, Fitzgerald has shown that unit labour costs (costs relative to productivity) in the Irish economy rose relative to the USA and Western Europe during the 2000s while growth of industrial exports virtually ceased.  From this he draws the conclusion that the latter phenomenon was a direct consequence of the former.

Apart from the fact that, as shown above, factors other than labour cost trends had a significant negative impact on Ireland’s merchandise export performance in this period, there are serious flaws in Fitzgerald’s analysis.  The labour cost indicator which he uses is the OECD’s Total Economy Unit Labour Cost (ULC), which is based on labour costs throughout the economy and not just in exporting firms (direct employment in export activities accounted for only 12% of Ireland’s total employed workforce in 2000).  Apart from the dubious merit of calculating a national average from such a disparate array of economic sectors (many of which are effectively sheltered from international competition), the assumption (implicit in Fitzgerald’s argument) that unit labour cost trends in the export sector reflect those in the economy at large does not hold water.  Fitzgerald makes no reference to the OECD data on Manufacturing ULCs, which provide a more accurate view of labour cost trends in the Irish export sector (as some 80% of Irish manufacturing output is exported).  These data show that not only have Manufacturing ULCs shown an overall downward trend in the period 2000-2007, but they have been falling relative to most of Ireland’s main trading partners.

Figure 3: Trends in Total Economy & Manufacturing Unit Labour Costs (ULCs) relative to the OECD average, 2000-2007 [2000 = 100]

Source: OECD

Figure 3 shows how Ireland fared relative to the OECD average with respect to both Total Economy and Manufacturing ULCs between 2000-2007.  This shows Total Economy ULCs falling slightly between 2000-2003 and then rising consistently between 2002-2007.  Manufacturing ULCs fell sharply between 2000-2002, then rose again to the OECD average in 2005 & 2006 before falling again in 2007.  The overall trend lines show a diverging trend over time, with Total Economy ULCs rising and Manufacturing ULCs falling over the period.

Table 5 shows the change between 2000 and 2007 for both labour cost measures for Ireland and ten of Ireland’s twelve main trading partners (no data available for China and no Manufacturing ULC data available for Switzerland).  This shows that while Ireland’s Total Economy ULC rose more quickly than any of the other countries, Ireland’s Manufacturing ULC actually fell over the period whereas they rose in six of the ten comparator countries, while of the four which experienced a fall in Manufacturing ULCs, only Japan’s and Sweden’s rate of fall exceeded Ireland’s.

Table 5: Change in Total Economy & Manufacturing Unit Labour Costs – 2000-2007

Total Economy Manufacturing
2000 2007 2000 2007
Belgium 100.0 113.6 100.0 103.7
France 100.0 114.2 100.0 100.8
Germany 100.0 97.8 100.0 91.0
Italy 100.0 120.8 100.0 120.4
Japan 100.0 85.8 100.0 77.8
Netherlands 100.0 114.9 100.0 102.3
Spain 100.0 124.0 100.0 119.4
Sweden 100.0 110.3 100.0 87.1
United Kingdom 100.0 119.5 100.0 107.1
United States 100.0 115.5 100.0 92.7
Ireland 100.0 125.4 100.0 90.5

Source: OECD

Comparative data on Unit Labour Cost trends in export services are not available, but the relevant trends for Ireland can be estimated from Forfás surveys of the economic impact of state-aided economic activities.  These show that Unit Labour Costs in Export Services (pay costs per worker divided by value added per worker) fell by 26.6% between 2000-2007 in the foreign-owned export services sector (which accounted for 94% of services exports in 2000).

Fitzgerald’s assertion, to the effect that Irish manufacturing exports were negatively affected in the period after 2000 by rising labour costs is therefore based on a false premise, since relative labour costs in the export manufacturing sector actually fell in this period.  It has been pointed out by some commentators that real unit labour costs in manufacturing are understated due to the effect of transfer pricing (whereby TNCs operating in Ireland overstate the value of their output in order to avail of Ireland’s low corporation tax rate) in overstating value added.  However, this refers to the absolute value of unit labour costs – there is no obvious reason why this should impact on the rate of change of unit labour costs over time, which is our concern here.

A more obvious flaw in Fitzgerald’s analysis refers to his treatment of services exports.  While acknowledging their strong growth in the 2000s, he fails to explain why the purported rise in Irish labour costs should not have impacted on these in the same way as he suggests they impacted on manufacturing.  To put this in perspective, according to Forfás survey data, in 2007 labour costs accounted for 9.9% of total costs in the foreign services export sector compared with 11.1% of total costs in the foreign manufacturing export sector (i.e. there was no major difference in the relative cost of labour in both sectors).

This last statistic brings us to what is possibly the biggest flaw of all in the argument of those who assert that labour costs are the key ingredient in export competitiveness i.e. labour costs in fact only account for a relatively small proportion of costs in Irish export activities.  To explore this further, Table 6 presents some relevant data from the Census of Industrial Production (CIP) relating to Ireland’s main export manufacturing sectors for the period 2000-2006 (with the exception of the Food & Beverages sector in which natural resource endowment has a substantial impact on competitiveness).  Due to changes in coverage, the CIP data for 2007 are not directly comparable to previous years and have been excluded from this table.

Garret Fitzgerald in his Irish Times articles has placed much emphasis on the job losses sustained in the 2000s due, in his view, to rising labour costs.  One might expect, therefore, that sectors in which labour accounted for a high proportion of costs to have the weakest employment performance over the period, either due to loss of market share or through substitution of capital for labour.  In fact, the data in Table 6 show no relationship whatever between proportionate labour costs and rate of employment change (Pearson’s R = -0.03).  Thus, for example, the Medical, Precision & Optical Instruments sector, in which labour costs accounted for 25% of total costs in 2000, experienced 41% employment growth over the period, whereas the Electrical Machinery & Apparatus sector, in which labour costs were almost equally important (23%) experienced a decline in employment of 50%.  A distinctive feature of the table is the major differences between sectors in employment performance, which demonstrates the futility of making industry-wide statements about employment trends and their causes.

A further distinctive feature of the table is the relatively low proportion of costs accounted for by labour costs in all sectors, ranging from just 4.1% for Office Machinery & Computers to 28.7% for Machinery & Equipment, with an overall average for the nine sectors of 10.8%.  It may be noted that the very low labour cost share in the Office Machinery & Computers sector did not spare that sector from serious job losses in the 2000s, indicating that China’s meteoric rise in this highly competitive sector is attributable to low costs in general, and not merely low labour costs.

Table 6: Labour costs and employment change, main export sectors – 2000-2006

Sector Export % 2000 Labour % Input Costs 2000 Empl Change 2000-2006 (%)
Reproduction of Computer Media 97.2 21.1 -27.5
Organic Chemicals 99.8 8.2 +23.3
Pharmaceuticals 96.0 16.4 +35.3
Perfumes & Toilet Preparations 98.5 27.8 -28.5
Machinery & Equipment 71.6 28.7 -22.7
Office Machinery & Computers 86.0 4.1 -36.4
Electrical Machinery & Apparatus 83.1 23.2 -50.3
Communications Equipment & Electronic Components 93.3 13.2 -43.4
Medical, Precision & Optical Instruments 95.4 25.0 +41.2
Total 92.7 10.8 -14.8

Source: Census of Industrial Production (CIP)

Economic commentators appear to be unaware of the low share of labour costs in the total cost structure of Ireland’s exporting firms, frequently pointing to the high share of GNP accounted for by labour remuneration as indicative of the importance of labour costs to competitiveness.  Thus, in a recent article dealing specificially with the measurement of labour cost competitiveness by Central Bank economist Derry O’Brien in that institution’s prestigious Quarterly Bulletin, the following passage appears on page 105: “The largest costs incurred by firms are typically labour costs”.  This is presented as a self-evident truth with no supporting data, yet as is obvious from the data presented above, labour costs account for only about ten per cent of total costs in the export activities which were the very focus of the paper in question.  This means that the five per cent reduction in wages which the ESRI’s John Fitzgerald sees as being necessary to restore Ireland’s competitiveness (see quotation above) would have the effect of reducing the overall costs of the average exporting firm by less than one half of one per cent – hardly likely to have a major impact on competitiveness.


This part of the paper has shown that, while economy-wide unit labour costs in Ireland did rise more rapidly than in Ireland’s main trading partners in the period 2000-2007, unit labour costs in both manufacturing and export services moved in the opposite direction.  While this was associated with a rapid rise in services exports (and might have been in the case of manufacturing exports were it not for the intrusion of several extraneous factors which had a particularly negative impact on Ireland’s merchandise exports), this should not be construed as establishing a causal link between trends in labour costs and trends in export performance.  An examination of the cost structure of Ireland’s main manufacturing export sectors revealed that not only was there was no link between the proportion of total costs accounted for by labour costs and employment change in these sectors, but that labour costs in general account for a low proportion of costs in the sectors in question (as is also the case with export services).

The third and final part of this paper reviews a number of alternative approaches to assessing national export competitiveness which are much more complex and sophisticated than the simplistic – and erroneous – reduction of competitiveness to international differences in unit labour costs.  These alternative approaches generally portray Ireland’s competitiveness position in a much more favourable light than has become the norm in public discourse of the topic in Ireland.


O’Brien, Derry (2010) Measuring Ireland’s Price and Labour Cost Competitiveness Central Bank Quarterly Bulletin, 2010 No 1, 99-113.


Proinnsias Breathnach

Fine Gael’s claim today that that Irish financial institutions may be exposed to up to  €7 billion should Greece default raises an interesting question: which countries have the largest exposure to Greek debt? According to the Bank of International Settlements, exposure to Greek debt is very much a European affair. The Peterson Institute for International Economics report (based on data from the Bank of International Settlements) that French banks —with €60 billion—have the largest exposure to Greek debt, on an ultimate risk basis (mostly through ownership of Greek domestic banks, such as Crédit Agricole’s controlling share of Emporiki Bank), while German banks with a €34 billion exposure are the other principal eurozone creditor.  The potential losses facing the US are significantly less (€13 billion).

Of the other much-maligned “PIIGS”, Portugal and Ireland could also suffer hefty losses in the event of a Greek default: Portuguese banks have €7.5 billion in exposure to Greece, while Irish banks could be sweating over the fate of €6.5 billion. Of course, given the astronomical sums of money we have already poured into our banking system,  €6.5 billion almost sounds “manageable”.

Declan Curran

Private Banking Sector exposure to Greece by country, 2009 Q4

*Luxembourg and Switzerland figures are combined in Table 1 as the $60+ billion exposure of Luxembourg to Greek debt relates to the 2009 Q4 shift of residence of the European Financial Group (EFG) SA, ultimate owner of EFG Eurobank from Switzerland to Luxembourg. Source: ECB, Bank of International Settlements (BIS), estimates calculated by Jacob Funk Kirkegaard for the Peterson Institute for International Economics.