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News : EU Economy Last Updated: Jul 29, 2015 - 11:32 AM


Is Euro Area Ireland's top trading partner?: EU28 is overwhelmingly UK's
By Michael Hennigan, editor of Finfacts
Jul 28, 2015 - 7:58 AM

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While the European Union (EU28) is overwhelmingly the UK's top trading partner, the question has been raised in recent days on whether the Euro Area is Ireland's top trading partner or whether it is an Anglo-Saxon alliance that will copperfasten prosperity, free of sclerotic Europe?

David McWilliams wrote in his Sunday Business Post column last Sunday: "...there is a startling divergence between the British economy, our biggest trading partner, and the Eurozone economy that Official Ireland pretends is our biggest trading partner...we are actually part of the Anglosphere which maps a giant global arch from Dublin to London, across the Atlantic through North America and down to Australia and New Zealand. This is our world. This is where we trade, where our investments come from, where our people live. It is an interlinked web of culture, language and family."

  • The British economy is not the Republic of Ireland's biggest trading partner;
  • Ireland is the UK's 5th biggest goods export market and 10th biggest import market and among the top trading partners, the US and Ireland are unique in having goods trade deficits with the UK. In 2014, both Italy and Spain had big surpluses with the UK;
  • In 2014 Ireland's traditional food and drinks surplus with the UK evaporated. Ireland accounted for 24% of UK food and non-alcoholic drinks exports ahead of France with a 11% share — it could be called the Tesco effect;
  • Including services and excluding €5bn in Irish computer services "exports" that are in fact Google UK sales, Ireland has an overall trade deficit with the UK;
  • The global export sales of Irish indigenous firms in 2014 amounted to €18.6bn compared with UK exports to Ireland of goods and services at €27bn;
  • About 90% of Ireland's tradeable exports are made by foreign-owned firms and generally staff in Ireland do not make decisions on destination of exports. In 2013 about 40 American firms accounted for two-thirds of the value of Ireland's headline goods and services exports in 2013;
  • The Euro Area is Ireland's biggest trading partner as per the chart above;
  • The 27 other member countries of the EU28 comprise the UK's top trading partner: Office for National Statistics data show that in 2014, the UK exported £227bn of goods and services to other EU member states. This is equivalent to 45% of total UK exports. Goods and services imports from the EU were worth £288bn (53% of the total) and the UK had a trade deficit of £62bn with the EU in 2014. Exports to the US were £90bn and exports to China £17bn in 2013 - goods exports were valued at 13.8bn in 2014. The ONS says trade in goods represented close to two-thirds of all UK exports to the EU, and over three-quarters of total UK imports from the EU.

Soundbite narratives are popular and with Europe struggling, the current Irish recovery is attributed to the economic ties with the UK and the US. These of course are important, including for emigration, but the data since early 2013 show that most of the added jobs were not in exporting firms.

In July 2000, Mary Harney, then enterprise minister and leader of the Progressive Democrats, in a speech famously put Ireland in the American orbit. It was fine that Germany financed road building and provided CAP welfare to Irish farmers at a rate of 6% of annual GDP a few years before. Times had changed and the alchemists had found a formula that would create a permanent prosperity.

"Geographically we are closer to Berlin than Boston. Spiritually we are probably a lot closer to Boston than Berlin," Harney said. "When Americans come here they find a country that believes in the incentive power of low taxation. They find a country that believes in economic liberalisation. They find a country that believes in essential regulation but not over-regulation. On looking further afield in Europe they find also that not every European country believes in all of these things."

Five years later Thomas Friedman, New York Times columnist, began a piece with a Dublin dateline: "Here's something you probably didn't know: Ireland today is the richest country in the European Union after Luxembourg."

It wasn't the truth then and it's even further from it now.

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

"It wasn't a miracle, we didn't find gold," Friedman quoted Harney. "It was the right domestic policies and embracing globalization."

In 1973, the year Ireland joined the then European Economic Community (EEC) almost 55% of the total value of exports went to the UK followed by the Other 7 EEC members (21%), Rest of World (14%) and the US (10%).

The UK now accounts for about (17%) of total exports; the Other EU26 (39%); the US (18%); Rest of World (26%).

During the Irish recession of the 1980s, there was a lot of debate on introducing foreign languages at school primary level and it got nowhere.

In 2010, approximately 3% of Irish primary school students were studying a foreign language — compared to the UK's 69%, and an EU average of 79% according to Eurostat.

The inability of the indigenous international trading sector to develop significant markets inside or outside of what David McWilliams calls the Anglosphere, does not mean we can float on an arc all the way to New Zealand.

There is no pot of gold under that rainbow either.

David McWilliams writes: "We are the only Eurozone country that actually does more trade outside the Eurozone than within it."

However, behind this claim is a reality that it's not Irish firms in the main that are handling the trade. Most of this trade doesn't even involve selling, marketing overseas, or innovation in Ireland.

The Irish Government says that 54% of IDA Ireland client firms are research and development (R&D) inactive and a small number of the foreign firms account for most of the low activity. The level of patenting has hardly changed in a decade.

Irish Patents Office Annual Report 2014: Once again Bruton has nothing to say

David McWilliams also writes: "In a world of mobile capital there can be few more attractive destinations for innovative and high-tech investment. Britain has four of the top ten universities worldwide, generating world-class academic research. This is evidenced in the disproportionate number of British-based Nobel prize winners in science."

However, the commercialisation record is poor:

UK and Irish business R&D heavily reliant on foreign-owned firms

It is good to see the British economy improving as many indigenous firms are reliant on it.

London is a successful global city but it is only part of the UK economy and in 2014 GDP per capita was still slightly behind France and several other European countries. Exports to Ireland exceed exports to China and the UK has run a combined goods and services deficit every year since 1999.

In contrast with Germany where most new jobs added in the economy in recent years have been permanent ones, there has been a big rise in self-employment and part-time jobs in the UK.

The reality check here is that the Irish will never become rich by holding the cap out in the biggest part of the Anglosphere for ready-made jobs.

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

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