Economic and Policy Development of the Republic of Ireland in Comparison to Iceland.

Economic and Policy Development of the Republic of Ireland in comparison to Iceland.
Ireland and Iceland, having both undergone economic problems in recent years, have current economic situations which are very comparable. Experts claim that “Both economies experienced deep crises in 2008-2010: Icelandic economy contracted to 90.41% of 2007 levels by the end of 2010, while Irish economy declined to 92.13%”. Their reaction to their banking crisis, however, was poles apart.

Employment
In the case of unemployment, figures show that Irish unemployment is than 50% above that in Iceland. By the end of 2015, IMF forecasts Irish unemployment to be 9.5% and Icelandic unemployment to be 3.12% or more than 3 times lower than that in Ireland.

These figures represent a cut in unemployment figures in Iceland generated by job creation strategies, whilst in Ireland, worryingly, unemployment will decrease through migration of the unemployed.

Figure 1: The percentage unemployment rate of the labour force in Ireland compared to Iceland.

Higher Education
Key Statistics 2010/2011 released on 1st September 2011 by the Irish department of education and skills calculated the number of students in studying in the Third Level University Sector at 89,273, while the number of people studying at Tertiary level in Iceland 19,859. With Ireland having a population of 4.6 million and Iceland with a population of 318,452 there is obviously a much larger proportion of Icelandic in higher education than Irish.

Tourism
In 2010 the number of jobs in tourism in Iceland was 5.1% of the total number of jobs in Iceland, with approximately 495,000 visitors to the country. In comparison the Irish tourism and hospitality industry employed an estimated 177,935 in 2010. Ireland had 5865 tourists from overseas in 2010, and a total tourism revenue of €4,668 million revenue in the same year. Both of these figures however have been gradually decreasing since 2007. The current global economic situation must also be taken into account in this situation however.

Exports
Meanwhile Iceland, who’s economy is also based to a large extent on exports has been steadily improving the number of its exports without help from TNCs, has now has a large percentage ( Exports-to-GDP ratio in 2010: 36,4 %)

Figure 2: Export Levels of Good and Services in Ireland, Iceland and the UK.
Migration
The obviously high recent emmigration pattern for Ireland is reflected in the statistics, with a net migration of 47 migrants/ 1000 in the population in 2010.

Figure 3: Migration levels 1987- 2005

In contrast, Iceland had a starkly lower ratio of net migration at 1.13 migrant(s)/1,000.

Health
Iceland has decided to focus on retaining their health and welfare systems, whilst Ireland has made major cutbacks on their public health system as part of a larger clamp on public services. In their article in The Irish Times - Saturday, December 3, 2011, Martin Wall and Paul Cullen calculate that the amount available to the Health Service Executive to provide healthcare could be reduced by €600 million to €700 million in 2012.

Trade
Both Ireland and Iceland have seen improvements from their current accounts deficits. However, Iceland, as in other individual cases, has improved at a rapidly better rate. With Ireland, whose ‘Celtic Tiger’ and economic stability had once been based on exports, has in recent years witnessed a decline. The main exported commodities were: Machinery and equipment, Computers, Chemicals, Pharmaceuticals, Live animals, Animal products. Ireland’s exports partners include US, UK, Belgium, Germany, France, Spain. However, it has been mainly foreign companies which have kept these high export figures above water, with the value of Irish exports dropping significantly; the figures falling by 12% to stand at €7.12 billion, in comparison to the 2008 exports of €8.12 billion.

Banking Crisis
Both Ireland and Iceland have suffered from a form of banking crisis. “Both Ireland and Iceland have experienced rapid collapse of their asset markets …Hence, both economies started from roughly speaking similar conditions”. There is a variation, however, in how well each country has reacted to and emerged from this. Constantin Gurgiev claims that Iceland, who defaulted on its banks’ liabilities and wrote them off the countries balance sheet, have seen a much faster comeback than Ireland, whose approach included carrying the liabilities on the “shoulders of its economy”. Paul Cullen states: “Three years ago Iceland led the way into an economic abyss. Now, by raising taxes, letting the banks go bust and protecting the public sector, it is showing a way out”. When Ireland propped up its banking system, Iceland allowed the banks to collapse. Timo Summa, the EU’s representative in Iceland claims “More and more economists are saying that this model – letting the banks go bust – is the best, especially for small countries... The foreign bondholders lost a lot, but that came after years of huge profits.”
The IMF is demanding that the Irish Government cut minimum wages and reduce unemployment benefits, whilst Iceland has focused on retaining their welfare system. Paul Krugman of the New York Times describes the nature of the contrast between the Irish and Icelandic approaches:
“What’s going on here? In a nutshell, Ireland has been orthodox and responsible — guaranteeing all debts, engaging in savage austerity to try to pay for the cost of those guarantees, and, of course, staying on the euro. Iceland has been heterodox: capital controls, large devaluation, and a lot of debt restructuring… and guess what: heterodoxy is working a whole lot better than orthodoxy”.
Iceland’s focus on the social welfare of its population, coupled with their decision to waive the debts of its banks and the lenient attitude towards mortgage payers has meant that have bounced back from their banking crisis much quicker that Ireland: “We’re finished with austerity,” says a senior political source, predicting only “minor cuts” in next month’s budget. In terms of homeowners and mortgages, homeowners in both countries were provided with the option of restructuring loans, but the Icelandic authorities introduced a debt-forgiveness scheme “loans were written off where they exceeded 110 per cent of a house’s value. So a person who borrowed the equivalent of €500,000 to buy a house that then halved in value could potentially have €225,000 of the mortgage written off.”
Where once Ireland had a marked economic advantage over Iceland recent events have seen the tables turn. Sigfússon emphasises this: “There was a time when Irish politicians made a point of saying: ‘We’re not Iceland.’ Well, they’re not saying that anymore.” Iceland’s bold moves and progressive policies have meant that they have responded to the contemporary economic crisis in a superior way than their Irish counterparts. ” Gerard McCann claims that “As an alternative to the failed economic model of the past 20 year…answers could be drawn from other European regions … regions that due to careful democratic management of economic policies have been able to navigate through recession without too much pain for their populations”.

Conclusion
Whilst similar in many areas of their economy it is clear now that the crucial element which separates the countries of Ireland and Iceland is how they have responded to the banking crisis they have both suffered. Ireland has higher debt levels, higher net migration and a tourism industry which is faltering faster than their counterparts. The Icelandic have a greater percentage of their population in higher education, have a trade industry which is growing where Ireland’s is waning and are focusing on retaining their public services. Ireland could learn from Iceland’s reaction to their banking crisis.

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