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News : Irish Economy Last Updated: Jun 30, 2015 - 10:50 AM

Irish lessons for Greece on growing exports and investment
By Michael Hennigan, Finfacts founder and editor
Jun 30, 2015 - 6:00 AM

Michael Noonan, Irish finance minister, arrives for an emergency meeting of Eurogroup finance ministers on the  Greek crisis,  Brussels, June 27, 2015

The Greeks and the Irish are Europe's worst exporters but the only way Greece can grow is to emulate Ireland's successful inward investment model, whether or not the country remains a member of the single currency.

That was the message that Taoiseach Enda Kenny should have conveyed to Greece last week rather than making dubious claims about taxes during the Irish bailout. Earlier this year, Mario Draghi, European Central Bank president, said that the Greek tax burden at 34.2 per cent of economic output in 2013 was well below the euro zone and EU28  average. The Irish level was 33.6 per cent of gross national product in 2013. 

Official unemployment rates alone show that the human toll of austerity has been greatest in Greece and beyond current wrangling with creditors, the country desperately needs a credible growth plan with a focus on making exporting a jobs engine..

“If you go into the shops here when you’re doing your weekly shopping, apart from feta cheese, how many Greek items do you put in your basket?” Michael Noonan, finance minister, asked in a 2012 interview. Greek goods imports to Ireland in 2014 were valued at €34 million — the same level as imports from Bulgaria, the EU's poorest country.

Last year the European Commission published research which showed that Greece was Europe's worst exporter with a goods and services export ratio of 30 per cent of gross domestic product (GDP) in 2013. Refined fuel is the biggest goods export but it relies on imports while Greece is a leader in merchant shipping but the crews are mainly foreign .

Ireland's export ratio exceeds 100 per cent of GDP and about forty big American firms account for two-thirds of the total — the foreign-owned sector accounts for 90 per cent of Irish tradeable exports.

It is far from an ideal situation that Ireland has only an estimated 4,0000 exporting firms compared with for example Denmark's 30,000 but it illustrates that even with a strong foreign presence, it's very difficult to develop an indigenous exporting base where a tradition of exporting is lacking. Export performance is also mainly dependent on firm structure rather than a country's national policy — Germany for example has a high ratio of large and medium firms.

Nevertheless, a small country without significant natural resources should take advantage of foreign direct investment to keep talent at home, increase employment, and in the case of Greece boost a key sector such as tourism.

Greece's record in attracting foreign direst investment (FDI) has been dismal and much lower than its regional neighbours.

Inward FDI as a percentage of Greece’s GDP averaged only about 1 per cent from 2004 through 2010, according to Boston Consulting Group, while the EU average was 3.7 per cent. Despite Greece's better infrastructure than its neighbours, Turkey, Romania and Bulgaria had an average of 8.1 per cent.

China's overseas investments are set to triple by 2020 while Ireland received only €99m from €46bn in direct investments in European Union (EU) countries in the period 2000-2014, according to new research — the US is the dominant foreign investor in Ireland.

Portugal received Chinese nvestments valued at €5.1bn in the period and Greece's level was at €405m.

Reforms in Greece in recent years have resulted in a big improvement in the World Bank's benchmark Doing Business index of the ease of doing business in a country.

However, it would likely take at least a decade for the benefits to materialise of the work of competent Greek governments in putting policies in place to develop a sustainable economy.

Money transfers and debt relief can help but alone will not work — annual net grants and subsidies from the EU budget, separate to the bailout, amount to 3 per cent of GDP.

Economic convergence towards rich countries in a region if it happens at all, takes a very long time, and despite significant transfers and a similar culture, almost a quarter century after German reunification, GDP per capita in the former Communist East is about 70 per cent of the level in the former West Germany.

Greece and other poor countries in the euro zone will not become rich unless there is an economic miracle in Europe similar to the catch-up period of 1950-1973 when southern Europe grew at a 4.5% annual rate, according to the World Bank data. Outside the euro system, there is no miracle formula either.

In boom times Greece and Ireland appeared wealthier than they were and the Greeks and Irish have to adjust to more frugal times.

In 2006, Bank of Ireland published an infamous report, 'The Wealth of the Nation,' putting the Ireland  as the second-wealthiest nation on earth, after Japan. Nine years later  Eurostat, the EU's statistics agency, has reported that Irish GDP per head was 32 per cent above the EU average in 2014 while Greece's was 28 per cent below — the Irish metric is boosted by the tax-avoidance inflated profits of the foreign-owned sector.

However, using actual individual consumption per head in 2014 adjusted for price differences — a proxy for standard of living — Ireland at 93, was  at similar levels as those of Spain and Cyprus, but below the euro zone average of 106 and EU average of 100. Greece and Portugal were at 83.

Greece and Ireland can do better for their citizens but the Greeks are at greater risk of being worse off in the years ahead.

Yanis Varoufakis,  now Greek finance minister, in 2012 warned foreign economists including Paul Krugman of The New York Times, that emulating Argentina's default in 2001 was no panacea for Greece  but he did argue for default within the euro zone. "And use our readiness to default as a bargaining strategy."

Europe's Worst Exporter: Poor export performance of Greece

Irish standard of living in 2014 below Euro Area average, Italian level; Prices 5th highest in EU28

Ireland vs Greece: Enda Kenny's false claims on growth, taxes and debt

Irish Export Performance: Myths and reality - Ireland is a poor exporter

Greece and other poor countries in Euro Area will not become rich'

Yanis Varoufakis blog post 2012

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