This year marks a century since Ireland joined the League of Nations, which marked the formal international recognition of Ireland’s independence. However, in the economic sphere, we were still part of a British Isles economy.
Ronan Fanning’s history of the Department of Finance up to 1970 documents how much Irish economic and fiscal policy looked to London during the first 50 years of independence. Ireland relied almost exclusively on the British market for our exports, and our currency was tied to sterling. But, above all, the intellectual influence of the UK Treasury, and of other British economists, held sway.
It should be said that the two major economic agreements between Ireland and the UK in the pre-second World War years were favourable to Irish economic interests, reflecting a degree of generosity and also self-interest, by successive UK governments. The 1925 agreement saw the UK write off most of Ireland’s large legacy debt, accepted on independence. The 1938 agreement saw the UK write off the land annuities for a relatively small capital payment. In return, Ireland offered a de facto promise of neutrality in a future World War, of obvious importance to the UK government.
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However in the postwar years, Ireland was of little interest to UK governments and Ireland’s weak economic position was apparent. Thus the decision from the early 1960s to seek EU membership was seen by the Irish political system as a way of finally taking control of the country’s economic destiny. It was also a logical extension of the switch from a protectionist economy to one opening up to free trade, as had been signalled in Whitaker’s 1958 paper Economic Development.
So fifty years ago, Ireland’s accession to the EEC (now the European Union) opened up a new world. Instead of trekking to London on occasion, department officials now took the plane to Brussels to engage in discussions on Europe-wide economic policy. New economic perspectives, drawn from a wider cohort of union colleagues, broadened the horizons of Irish policymakers to look beyond the English-speaking world. Over the last fifty years, our officials have developed alliances and often friendships, across member states, as they participated in decision-making in Brussels. While we have charted our own course, it has been an integral part of the wider development of the European Union.
It had long been clear that, when UK interests were involved, they would set aside bilateral agreements. By contrast, within the union, relations between states are governed by law and even large countries cannot pursue their domestic interests disregarding fellow members’ interests.
A recent book by Patrick Honohan and myself, “Europe and the Transformation of the Irish Economy,” looks at how Ireland has exploited the opportunities provided by union membership, radically transforming our standard of living over the last half-century.
Initially, the costs of membership were reflected in the closure of many small uncompetitive domestic firms. This was painful for all involved. However, even before European Union entry, Ireland had begun a strategy of moving manufacturing from its traditional concentration on food processing to developing new areas of expertise, such as pharmaceuticals and later technology equipment. It took time before this strategy bore fruit.
Bad domestic policy choices in the late 1970s and early 1980s delayed Ireland’s economic flowering by a difficult decade. Thus, it was only in the 1990s that the economy matured, exploiting the full benefits of globalisation. The advent of the European Union Single Market in 1993 was of particular benefit to Ireland, removing many remaining trade barriers within the union, not only for goods but also importantly for services, as Ireland moved increasingly towards a service-focused economy.
European Union membership did not prevent the disastrous domestic policy failures that gave rise to the financial crisis experienced after the 2008 crash. It can be argued that the rigidity of EU economic policy at the time made our recession more painful and the recovery slower. However, though dented, the Irish “economic model” was not broken by the crash. The economy has since recovered with vigour and now enjoys record employment levels.
While it is easy to point to the direct economic benefits of union membership, probably as important has been how it has opened all Irish institutions to different ways of thinking, not only about economics but also about how we organise our society. From a very closed world fifty years ago, exposure to new ideas through engagement with Europe has had a lasting impact on public service, on social partners and on civil society in Ireland.
