The country that said Yes

Ireland, from inside the euro-zone, is booming. As inflation soars and wage pressures grow, are ther

The Republic of Ireland, firmly inside the single currency, has done terribly well out of Europe. It is the most outstanding example of material success in the rich world. It is growing by something between 7 and 9 per cent a year. Its unemployment, at around 16 per cent in the early 1990s, is now less than 4 per cent. It scours the British Isles for more labour. Each Sunday, the ferry from Hollyhead to Dun Laoghaire is full with workers from Wales, going to spend a week working in Dublin - a reverse of the pattern that prevailed for much of the past century. Ireland now "imports" a net 20,000 people a year, many of whom are returning exiles.

Dublin house prices now reach London levels - and even, in some areas, exceed them. Inward investment, especially from the United States, continues to boom: among the attractions are low corporate taxation and an increasingly skilled workforce, in whose education, especially computer skills, the government has invested strongly. The country, with a population of 3.7 million, has one-third of Europe's bandwidth capacity and more than one-third of its inward high tech investment. The Dublin-based Baltimore Technologies is one of Europe's most successful software houses, buying up companies in the UK and on the Continent at the rate of one a month. The Massachusetts Institute of Technology sited the European centre for its MediaLab - the most famed high tech laboratory in the world - in Ireland. Nicholas Negroponte, the lab's director, commended the country for its "great respect for madness". If he was confirming, in a new guise, an old stereotype of anarchic Irishness, he was also endorsing it as a postmodern attribute.

But there is a cloud on the horizon. Ireland's inflation rate has zipped upwards, from less than 3 per cent in the spring to between 6 and 7 per cent now, the highest in the European Union. Patrick Honohan, an economist with the Economic and Social Research Institute in Dublin, says that the fall in the value of the euro against the pound and the dollar is largely to blame. "Ireland," he says, "is the most open economy in Europe. It trades mainly with the UK and the US. So its import bills have just soared." So long as the euro remains weak, the problem will continue. The pressure is increased by the sheer momentum of the economy. Labour shortages mean that employers actually want to pay more, and they were already quietly breaking the terms of the agreement. High company profits and low company taxation make an easy case for higher wages.

Has this caused Ireland to cool on Europe and to see a case for Euroscepticism, as many Eurosceptics in Britain (another open economy) hoped it eventually would? It may seem so, since Sile de Valera - the arts minister and granddaughter of Eamon de Valera, the dominating force in Irish prewar politics - told an audience in Boston in September that "the EU is not the cornerstone of what our nation is . . . we have found that directives and regulations agreed in Brussels can often seriously impinge on our identity". Mary Harney, the deputy prime minister and leader of the economically liberal Progressive Democrats who are Fianna Fail's (small) coalition partner, claimed that Irish commitment to Europe was not a commitment to the kind of Eurofederalism proposed by Joschka Fischer, the German foreign minister. "We have created jobs because we kept control of our own taxation policies," says Harney. "I do not want to see a situation in Ireland where we have to import the kind of job-destroying policies that are keeping millions of people on the dole across Continental Europe."

But this debate is itself a sign of self-confidence: no public figure would, until now, have thought of criticising a union that had given so much money (although the money is tapering away, Ireland is still a net gainer from EU structural funds), and so many opportunities for international prominence, to the new Ireland. "The government has not changed its policy on Europe one iota as a result of these statements," a senior government official told me. "Don't overestimate the importance of Minister de Valera's remarks." In other words, the debate is just a little luxury, and Ireland also has the luxury to ignore it.

Honohan says: "There wasn't a surge of enthusiasm in Fianna Fail after de Valera's speech. And Mary Harney needs to make a splash, because her party is low in the polls. Some of her ideologues would partake of a bit of Anglo-Saxon Euroscepticism. But that's a very small constituency." The conventional view, shared by Harney, is that Ireland has made a miraculous marriage between corporatism and neoliberalism, which has eluded other states and which is, perhaps, another tribute to its "great respect for madness".

But can the corporatism survive? This is based on a system that - it is claimed by almost everyone - has been most responsible for Ireland's success.

In the mid-1980s, when Ireland was wracked by recession and high unemployment, the then deputy leader, now general secretary, of the Irish Congress of Trades Unions (ICTU), Peter Cassells, proposed a new bargaining process. It would bring employers, government and unions into an agreement on wages and taxation, and thus deliver moderate, non-inflationary wage increases in return for tax reductions and the protection of the low-paid. The political class was sceptical: it was Charles Haughey, the then Fianna Fail leader, who, alone among the leading politicians, saw its possibilities and ran with it, pushing the employers into line.

In the years since, this process has grown to include discussions on a range of issues, including budgetary policy, and has added representatives of the farmers and the non-governmental sector to the traditional social partners. "This was the largest element in the turnaround in the Irish economy in the late Eighties," says Tom Wall, the ICTU's assistant general secretary. "It underpinned the growth we are getting now."

The latest wage deal, for a 5.5 per cent increase in wages, was signed in the spring. What had seemed a good deal is now, because of rising inflation, a bad one.

The unions' leaderships are under pressure from below to break out of the agreement - called the "Programme for Prosperity and Fairness" - and to get deals that accord with a more rigorous criterion for "fairness". The congress will meet the government very soon to begin a revision of the spring deal which, like all others, was supposed to last for three years.

But it will get little more - certainly not enough to satisfy the demands of its affiliated unions. Secondary school teachers, for example, have put in a claim for a 30 per cent rise; when it was rejected, they announced a series of strikes. The Aer Lingus cabin staff and pilots are on the verge of strike action over claims for parity with British Airways (with which the Irish carrier is linked in the One World Alliance) - claims that would mean, in some cases, 100 per cent rises. The transport union Siptu, by far the largest trade union, now openly advertises how it breaks the agreement in local deals in order to attract new members.

If the corporate bargain that has come to occupy a larger and larger part of Irish economic decision-making is to break down, it would be the first example of the euro currency decisively affecting a European state's polity. Although there is much that is self serving about the official view that Ireland has a unique mix of permissiveness and discipline, it is true that union leaders showed a very large vision in the Eighties, and that the country can now be seen as both a social democratic and a neoliberal success. Tom Wall says that he thinks too many people are committed to the corporate bargain - including the neoliberal Harney - to let it go, but adds that "this is the biggest challenge the agreement has ever had. This is the first time we have had to try to adjust it while the agreement was in force. It is a very great strain."

Ireland has other problems. Three separate tribunals are now in session, two of which point straight to corruption at the heart of Fianna Fail - for most of the past century, the natural governing party of the republic. The Moriarty Tribunal, investigating Charles Haughey, is revealing an extraordinary skein of payments totalling millions made to accounts controlled by him, for which he can now give no explanation; it has also implicated the present prime minister, one of Haughey's political godsons, Bertie Ahern. These tribunals will take years to finish. But, sooner or later, a series of conclusions will be drawn about an era in the recent past that prepared much of the present governing class for power. Many commentators believe that it will have the same effect on the Irish political system as the "clean hands" revelations had on the Italian one.

For the moment, however, the main problems are economic. A system that was instrumental in hauling the economy out of recession now strains before boom. But if British Eurosceptics look for allies in what once seemed the most romantically nationalist of countries, they will be disappointed.

As the iconoclastic commentator Eamon Dunphy says: "This is a totally consuming society, which wants nothing more than to get rich, to buy, to move house, to have a bigger car. This is consumption at the expense of tradition, religion, everything.

"It cares about nothing else so much: sometimes you think it really cares about nothing else at all."

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