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Eastern European Countries Look to Ireland For EU Prosperity - 2004-05-14


Many of the Eastern European countries that joined the European Union at the beginning of this month would like to follow Ireland's example, as a country that made the transition from poverty to prosperity after it joined the Union more than 30 years ago. The Baltic States, especially, believe they have much in common with Ireland and can successfully follow its example, but there are also differences between Ireland and the new EU members that could make it more difficult for the newcomers to achieve Ireland's level of success.

When Ireland joined the EU in 1973, its per-capita income was just 62 percent of the EU average. By 2002, it was 121 per cent of the average.

Like Ireland, the Baltic States were also dominated for centuries by a neighboring colonialist giant. Like Ireland 30 years ago, they are poorer than most other EU members, have few natural resources and are looking to EU membership as a pathway to subsidies and success.

Darius Semaska, the foreign policy adviser to Lithuania's prime minister, said that his country, which has about the same size and population as Ireland, is well placed to follow the Irish model. ?Basically, we see that we start from, perhaps, even a better position than Ireland back in the 70s and that we can follow and repeat this phenomenon,? he said.

It took Ireland nearly 20 years of EU membership to overcome high unemployment, mass emigration and a huge public debt. Irish economist Margaret Doyle said that the key to growth for small countries like hers is to attract foreign multinational corporations by slashing taxes.

?Ireland used its size to pursue some really aggressive tax policies,? she noted. ?So, for a while, it was a ten percent rate on manufacturing. Now it's a very low 12 and a half percent standard rate of corporate tax.?

By cutting taxes and the state's share of the economy, the Irish were able to exploit their access to the EU market and encourage a torrent of direct foreign investment. By 1998, U.S. multinational firms accounted for 70 percent of Irish exports. Ireland once exported labor. Now, it imports workers from eastern and southern Europe.

The lessons of tax cuts have not been lost on the EU's new members. Many have cut corporate taxes to below 20 percent. In Lithuania, the rate is 15 percent. By combining low taxes with good basic education and relatively low wages, countries like Lithuania and Slovakia can offer an attractive package to investors

Still, as Gail McElroy, a professor of political science at Dublin's Trinity College, points out, Ireland has some characteristics that do not exist in the Eastern European countries.

?Despite the optimism of many Eastern European countries and their clear kind of willingness to embrace the Irish model, there are things that are unique about Ireland that, perhaps, mean that it won't be quite as successful in several of the Eastern European countries,? she added. ?It's an English-speaking nation. It has close ties, and has always had, historically, to the United States, where a lot of the foreign investment came from. It believes in small government. It doesn't have a large welfare state compared with many of the Eastern European countries.?

Ireland has also benefited from a stable political system that has produced like-minded leaders with shared goals about what the country wanted from EU membership. Many of the Eastern European countries have suffered from constantly changing governments and still lack political stability.

Mark Birnam of Enterprise Ireland, an investment promotion agency, notes another problem. He says improving living standards in the new member countries, and their peoples' expectations of further improvements, mean the new EU member states will not want to remain Europe's poor cousins for decades, like Ireland did.

?Countries such as Latvia and Lithuania are not going to be low-cost producers for very long,? he said. ?They need to very quickly find a particular market niche and move up, learn from the experience of countries such as Ireland what they can do to expand. Those that do not will probably not succeed in the same way.?

Poland's ambassador to Ireland, Witold Sobkow, has his sights set on a more immediate challenge, how to take advantage of Ireland's experience in getting the most out of its EU subsidies.

?I think this is where Ireland can help us most,? he said. ?I mean, how to use efficiently the European funds, how to apply for permission for good projects, how to fill in forms, how to lobby in Brussels, things of this kind, everything related to the efficiency of using this membership for the benefit of the country.?

If any single element of the Irish model can be transferred to the newcomers, it is that EU membership helped Ireland develop what one Irish diplomat calls a feeling of national self-confidence. He said that his country's integration into the larger mix of cultures symbolized by the EU spurred its own sense of identity and pushed it toward what he calls a spirit of achievement.

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