Getting out of the financial crisis: Greece vs. Ireland

Greece IrelandThis article’s main thesis: Ireland is a tax haven, with thousands of big corporations based in Dublin. And that explains much of its success in getting out of the crisis, while Greece is failing.

Ireland is still struggling with a huge fiscal burden, due to the 2007 bursting of a housing bubble and subsequent bank failures.

But Ireland’s GDP, exports and jobs are now growing. And the unemployment rate is decreasing (15.1% in 2012; 13.1% in 2013; 11.3% in 2004…)

It’s very different what’s happening in Greece, where the current unemployment rate remains around 26% (March 2015), and the GDP and exports are not increasing (recent events have worsened the problems, but the previous situation was already dramatic).

Obviously there are many reasons and explanations for such a disparate evolution.

But there is one that outstands from the rest, and is rarely mentioned. That reason involves the corporate taxes of the two countries and the role of the foreign companies in Ireland and Greece.

See what’s happening in Ireland: there are thousands of big international corporations based in the country. They have flocked to Ireland (before the crisis) to benefit from its especially low Corporate Tax (12.5%). And they are again flocking to Ireland, attracted by its low tax. And these foreign companies are creating jobs and exports.

Yes. Ireland is a tax haven, and that’s a great trump card to fight the crisis.

In a small country like Ireland, the presence of thousands of foreign companies is extremely important. It’s not so much the recent policy of the Irish government, or a significantly better economic structure relative to Greece.

Greece can be accused of profligacy, and bad management; and it has a very weak export sector. But above all Greece hasn’t attracted the thousands of big corporations that Ireland has. Greece has a high corporation tax (33% for big companies). And that makes all the difference.

Obviously, with the current situation and the future prospects, things would not change much if Greece also became a tax haven.

And would the other European countries allow it?

Of course not.

Ireland is an exception. Not all countries can be tax havens. Not all countries can implement a “beggar my neighbor” job policy. The Irish corporate tax has a long history, and only a small country like Ireland could have it (though there are a number of European countries increasingly close to the Irish fiscal policy, including the UK).