Eurozone States fail to Emulate Ireland’s Competitiveness

 
 

Brían Donnelly contrasts Ireland’s vaunted reputation for competitiveness in the commercial world with that of traditional European economies.


IN 2011, Taoiseach Enda Kenny claimed that by 2016, Ireland could become the “best small country in the world in which to do business,” and some might claim that this has come to pass. The 2016 edition of the World Competitiveness Yearbook, an index compiled by IMD Business School in Lausanne, Switzerland, ranks Ireland 7th for global competitiveness, up 9 places on 2015.

 

However, Ireland is only one of two Eurozone countries to feature in the top ten. Other EU Member States, like Sweden and Denmark, rank ahead of Ireland but the Netherlands, ranked 8th, is the only other Eurozone state listed. Despite high unemployment in France and simmering banking crises in Italy, these countries, as well as Germany, are often cited as being the economic powerhouses behind the Euro.

 

How is it that two of the smallest economies among a subgroup of the world’s richest trading bloc manage to retain a competitive edge over countries with better infrastructure and more workers? Nations like Germany boast some of the world’s top universities and graduates, and France has École Normale Supérieure and École Polytechnique.

“Even between the years 2000 and 2008, France’s unemployment rate was above 8% more than it was below it.”

While, Ireland’s bottlenecked infrastructure acts as the main inhibitor to a better competitiveness ranking, countries like France and Italy face issues relating to the performance of businesses. Italian PM Matteo Renzi has staked his career on a referendum in December to reform the parliament and the manner in which it does business. Italian businesses quote rampant corruption and inefficient governance as critical issues that must be tackled to improve business competitiveness.

France’s sclerotic labour market is one of the main reasons behind not only its tragic score on competitiveness, but also its stubbornly high unemployment rate, which is currently fluctuating around 10%.

 

Even between the years 2000 and 2008, France’s unemployment rate was above 8% more than it was below it. However, efforts this year to reform the labour market were greeted with widespread street protests and labour union opposition. This lead President François Hollande’s Socialist Party to adopt a special parliamentary measure and pass the reforms without a vote.

 

While Germany is a large, diverse economy, it too faces labour market pressures of a different kind. Angela Merkel’s call to accept all refugees who journeyed to her country’s borders served an economic, as well as a humanitarian, purpose. In the country with Europe’s lowest birth rate, policy makers are wary of a looming ‘Fachkräftemangel’ – or worker shortage – which can only be realistically plugged by immigration.

 

Despite the massive number of refugees taken in last year (roughly 1.1 million), German government estimates published in July show that the working-age population is likely to decrease from about 49 million today to between 34 and 38 million by 2060.

 

Director of the Ifo Centre for the Economics of Education, Ludger Wößmann, has called for labour market reform to help refugees assimilate into the workforce, while recognising that accepting large numbers of refugees is not in itself a solution to the problem of a shrinking pool of workers. While men and women fleeing Syria or Eritrea may have held a job in their home country, Germany’s economy is fundamentally different, and far more advanced with regards to the use of technology.

 

While EU-wide directives, regulations on markets and common standards, may place all countries on the same or a similar level in a particular market, this does not strictly improve the efficiency or competitiveness of any one Eurozone country over another. Largely, competitiveness is an issue for individual state governments, and often comes at the expense of other states. Ireland’s low corporate tax regime, while a boon to competitiveness by reducing business costs, is often railed against by EU institutions, specifically the European Commission.

 

Commission proposals announced at the end of October proffer common rules for corporate taxation; while these might increase EU-wide efficiency in governance, this serves to make no individual country preferable over another with regards to what constitutes taxable corporate profits. Taxation rates remain within the purview of each Member State.

 

“German government estimates published in July show that the working-age population is likely to decrease from about 49 million today to between 34 and 38 million by 2060.”

Furthermore, many critics of the EU denounce it simply as a factory that churns out ‘business-killing’ regulations in the first place, rather than ones which promote growth. Despite this, EU and Eurozone member states have sent offers to companies in the UK who wish to remain in the Single Market following the British Exit from the EU.

 

RTÉ has reported that financial services behemoth Goldman Sachs is mulling a move to Frankfurt, while some Japanese firms in the UK are unsatisfied with the mere political ‘assurances’ received from Downing Street, and have been reportedly approached by EU Member States to entice them to move to the continent.

 

It’s clear that while being a member of the EU and the Eurozone is a strong element of Ireland’s economic competitiveness, it is not the sole strength. A low corporation tax and an educated, tech-savvy work force are often cited as reasons for the country’s economic appeal.  It is the combination of these factors which tends to see such foreign direct investment in Ireland and as a result place the country higher on the list for global competitiveness.

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