After a spectacularly bleak period of austerity, Ireland is forecast to grow by more than 2% next year. Three people involved in its hardest-hit business sectors discuss their hopes for a chastened – and still fragile – economy
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| Brian McKeon of Irish builder MKN has restarted work on a luxury housing development overlooking Dublin Bay. Photograph: Kim Haughton for the Observer |
Five years after the Irish government decided to stand behind its crippled banks – in a bailout that cost €70bn (£60bn) and forced the country to go cap in hand to the EU and International Monetary Fund for its own rescue package – Ireland is officially out of recession. Growth is projected to be 2.7% next year.
It has been a very rough road – 14% wiped off GDP, house prices down by more than 50%, unemployment peaking at 15% – and recovery is not yet guaranteed. This week, finance minister Michael Noonan will deliver the country's seventh consecutive austerity budget, with deep cuts to social welfare spending and other controversial measures expected.
Given how crucial this budget may be in terms of guiding the economy back to growth and prosperity, the Irish cabinet is holding an unprecedented emergency meeting on Sunday to hammer out every detail in this year's financial plan for the country.
But three sectors of the republic's economy that suffered gravely in the Celtic Tiger's collapse – construction, small businesses and tourism – are all reporting some signs of recovery.
Each is arguing against any VAT hikes or indirect tax rises, and for the government to create a more favourable, flexible environment to boost private business, big and small.
With the budget looming and Ireland on course to leave the international bailout programme and recover its economic sovereignty in the coming year, three people working in the three sectors hit hardest by the economic collapse – construction, small business and tourism – look ahead to their own and their nation's prospects.
THE BUILDER
When Brian McKeon's brother was coming in to land last week on a flight from Turin, he noted with pride two yellow cranes below, just to the north of Dublin bay. They were among very little construction plant visible anywhere in the city, where property prices have crashed more than 50%.
"He told me that he could see our cranes as the plane was coming into Dublin airport. There were hardly any others down there on the ground," says Brian McKeon.
His family firm, MKN, has been increasing its workforce on the site, which has spectacular views out to Howth, the Irish sea and the Dublin mountains in the far background.
They started back on the site in March with 30 workers and will eventually employ up to 150 people to complete the building of high-grade luxury apartments – exactly the type of properties most battered by the housing crash.
Over the last weekend of September and first week of October, McKeon also completed the sale of 20 new houses, in the town of Swords, near Dublin airport. He hopes he can repeat the same trend-bucking sales achievement when the job in north Dublin is finally finished next spring.
"We sold the homes up at Swords over the space of two weekends," he says, "and it shows that there is a demand for houses out there once more. There was even a slight increase in the prices of the homes – by a couple of thousand euros here and there."
MKN's construction director says that the last thing the Irish building industry needs in Tuesday's budget is an increase in VAT on the vital materials they need to keep their project going.
"Each house we build, we have to give a percentage in tax already to the taxman – but if VAT went up for things like concrete, flooring and the other materials you need to build apartments and houses, then we would have no choice to pass these rises onto the consumer."
McKeon passionately believes the coalition government should create, for the first time, the post of minister of construction in the cabinet. His suggestion chimes with the republic's Construction Industry Federation. Some 60% of all the jobs lost in the recession were in that sector, and of the 9,600 new jobs created in the first two quarters of 2013, around 6,400 were people being recruited back into the building trade.
McKeon says a minister of construction would be just as vital to the economy as the three ministers who currently look after farming and agriculture in Ireland, and he is irritated that the building business gets little government support.
"If PayPal creates 15 extra jobs in the hi-tech quarter of Dublin, you get Enda Kenny or a big minister turning up," he says. "I am employing 30 people here, with the hope of another 120 workers coming on to the site, and we get no recognition.
"The trouble is building and construction got a bad name because of the bad apples that played the property casino in the boom years. But they have all gone from the industry, leaving the genuine builders and developers left to get the industry moving again.
"We didn't make the mistake of overstretching ourselves in the boom like they did, as they built everything, everywhere, without any controls. But people still need houses to live in, and there is a shortage of decent homes in this country."
A survivor of the building bust, McKeon praises the coalition government in the UK for stimulating the construction sector with its Help to Buy newbuild scheme and other programmes.
Garrett McMahon outside his cafe in Glasnevin. Photograph: Kim Haughton for the Observer
"They have created incentives to build over in Britain now, with the removal of red tape and so many regulations. Our problem coming down the track here is that we are about to introduce some of the most stringent regulations in the industrialised world on building.
"For example, when these new regulations come in, I am going to have to employ an independent architect to check every day that we are adhering to all the new regulations and controls. I have to pay this architect, which adds to our costs every single day. But overall, I'm still optimistic: I can see the green shoots."
THE CAFE OWNER
A possible increase in VAT is also the thing Garrett McMahon and his partner Triona fear in the budget.
A few months ago the couple defied the doomsayers and took an enormous gamble by setting up a coffee shop in Glasnevin, close to Dublin's Botanical Gardens and the river Tolka.
Having invested their life savings in what appears so far to be a thriving small business, McMahon worries that any rise in VAT in the hospitality industry from its current 9% would severely dent profits and put their dream in danger.
The Irish government lowered VAT in the sector from 13% to 9% to boost consumer demand, which has been one of the main deadweights on the domestic economy.
"If they were to put it back up to 13%, that would mean 4% off every euro we make. Raising VAT again would shut down some small businesses and weaken demand," McMahon says, inside the small but extremely busy cafe, which sells a range of products from breakfast bagels to homemade banana bread.
"We don't want to be passing on higher prices to our customers, especially since we are still building a base here, because we have been pleasantly surprised by the footfall coming through the door.
"There is demand in this area for a better product, for nice food, and it's great that in Glasnevin we are not reliant on one single market. You have the workers from the Met Office up the road, and the builders over there working on extending the Botanical Gardens. You have pensioners coming in, parents with young children on a day off looking for a nice coffee. People are still willing to spend money out if the product is right."
As well as hoping for an unchanged VAT rate, McMahon says the climate for small businesses like theirs needs to be less restrictive: "We pay €2,500 rates to Dublin city council. We pay for our water, we pay for our bins and we still have to sweep our own footpath every day. There are too many regulations which constrict small to medium-sized businesses. It limits what we can do."
Garrett and Triona are putting in 12 hours a day, getting up at 5am to prepare fresh food. While they admit they are exhausted when Sunday comes and they can take time off, they remain upbeat about their prospects.
"Am I optimistic? Absolutely! From opening this business a couple of months ago the sales have increased at the till every week. We have all had to endure several really tough years but I do think we are pulling ourselves up bit by bit," Garrett says.
THE MARKETING MAN
More passengers have arrived and departed from Dublin's airport this year than in the last year of the Celtic tiger boom.
Paul O'Kane, the ebulliently optimistic public affairs director at the airport, notes that between January and July this year there was a 14% increase in traveller numbers: "For the first time since 2007 there has been monthly growth in numbers coming through our doors. That is a sign of real improvement in business."
O'Kane puts down the rise to several factors: a huge spike in transatlantic traffic; the presence on Irish soil of the US customs and immigration service, which means passengers don't have to go through heavy security checks after landing in the US; the growing presence of Gulf-state-owned airlines in Dublin; and the recession-proof Irish wanderlust.
"We are becoming more attractive to travellers from Northern Ireland and Britain who are going to the States and Canada, because you can go through all the security and customs checks by American staff here before you even touch down in north America," he says. "We also have more routes across the Atlantic than many British and European cities: there are now 224 flights per week from Dublin to north American destinations."
To cope with the boom in transatlantic business, Irish state carrier Aer Lingus is opening up new routes to San Francisco and Toronto in spring next year. Other airlines, such as United, have begun flying from Dublin to Washington DC, while US Airways now flies direct to Charlotte, North Carolina.
Cynics in Ireland grumble that the 700,000-plus passenger figures are boosted by a massive number of young emigrants seeking jobs and a new life outside recession-blighted Ireland. O'Kane, however, dismisses this theory as a myth.
"It's a nonsense to say the extra numbers are made of emigrants getting out. If these figure were to constitute up to even 100,000 leaving through Dublin airport due to emigration, there would be whole villages and towns completely empty across Ireland. It just doesn't add up," he says.
"The real reasons for this number are the extra tourists coming into Ireland and the additional numbers from Northern Ireland, Britain and further afield using Dublin as their hub connection to North America – and the Far East, Australia and New Zealand with Etihad and Emirates."
Others, particularly in the Irish government, claim that a recent tourist campaign, "The Gathering", aimed at appealing to the worldwide Irish diaspora (including those who claim Irish lineage several generations back), has contributed to the surge in traffic at Dublin airport.
The number of passengers from Northern Ireland taking advantage of the ever-improving road links on the eastern side of the island has definitely played a part.
"Last year 521,000 Northern Ireland passengers travelled through Dublin airport, which is equivalent to almost 30% of the population of the north," O'Kane, a northerner himself, says. He believes the numbers from across the border will increase next year.
As for the budget, the one thing O'Kane doesn't want to see is any increase in the €3 flat-rate tax imposed on all flights, whether long- or short-haul. Given that tourism is one of the republic's main invisible exports, and that the government has invested heavily in "The Gathering", that would seem unlikely.
ICELAND'S DARING
Iceland and Ireland found themselves facing parallel financial meltdowns in the autumn of 2008: their banks were hopelessly over-extended, leaving the two small nations staring into the abyss. Both eventually had to approach the IMF and others for emergency loans to avert state bankruptcy.
Before the fall, their economies had been star performers: banks such as AIB and Kaupthing had hastily bulked up and were playing in the top flight of European banking.
Over the water, Scottish first minister Alex Salmond spied a seductive blueprint for how a small, dynamic nation could rapidly blossom into a financial powerhouse. Indeed, with the rapid expansion of Scottish-based Royal Bank of Scotland and HBOS in mind, he frequently spoke of an "arc of prosperity" emerging across Europe's northern fringe.
Had his wished-for independence come to pass before 2008, of course, Scotland too, in all likelihood, would have found itself horribly in hock to the IMF.
But if Iceland and Ireland shared a similar fate when the crash came, the two nations then took dramatically different paths.
Ireland, locked in to the eurozone, was unable to rely on the cushioning effect of a weakening currency. In contrast, the Icelandic króna lost much of its value, greatly helping export businesses.
Then, while Ireland insisted it would use taxpayer funds to bail out its banks – and, in effect, their international bondholders – Iceland took a bold new tack. It said it could not afford to bail out any of its big three banks, and allowed them to collapse into administration. Foreign creditors, including hundreds of thousands of UK retail depositors with Icesave, could go hang. They would have to wait, and are still waiting, for partial recoveries on their bonds and deposits.
The move was controversial, but it was not long before economists were declaring it a masterstroke. Iceland, said Paul Krugman, had demonstrated the case "for letting creditors of private banks gone wild eat the losses".
Nobel prizewinner Joseph Stiglitz agreed. "What Iceland did was right. It would have been wrong to burden future generations with the mistakes of the financial system." For Financial Times economist Martin Wolf too, it was a triumph. "Iceland let the creditors of its banks hang. Ireland did not. Good for Iceland!"
In truth, the contrasting reactions owed a great deal to necessity. Iceland, a tiny country of 317,000 people with an output of less than $15bn, could never have mustered the financing to bail out its biggest banks. That said, its rich natural resources – fertile fishing grounds and abundant geothermal and hydro energy – made the prospect of wiping the slate clean and starting again distinctly less daunting.
Ireland had no such resources to fall back on. The outstanding feature of its economy is that it is substantially built on housing the European headquarters of US multinationals such as Apple, Google and Facebook. So active are the multinationals in the Irish economy that statisticians say they flatter GDP figures well beyond their actual contribution to the Irish economy.
Looking after overseas investors was, and is, a central tenet of Irish economic policy – and one from which the political class feels it dare not stray.
Simon Bowers
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