Poor, battered Ireland. It built an educated, affordable workforce, lowered taxes to lure investment, prospered, and in a move that inspired national pride, adopted the euro.
Then it all unraveled. Irish banks started to back one wild real estate development after another. Those ventures flopped in 2008. The loans went sour, and the Irish government had to rescue the banking industry. Ireland needed a bailout itself in 2010, requesting €67.5 billion ($85.7 billion) from the International Monetary Fund and members of the euro area. Taking the money meant accepting austerity: The government has cut expenditures by 15 percent over three years, consumer spending has dropped for six straight quarters, and young Irish by the thousands have emigrated to Australia and elsewhere.
Ireland has benefited from one development in this painful episode. The euro has weakened considerably, dropping 9 percent against the dollar and 7 percent against the British pound during the past year. Ireland’s main trading partners are Britain and the U.S., and with these countries the weaker euro makes its exports cheaper and is nudging the country out of recession. Says John Whelan, chief executive officer of the Irish Exporters Association: “There is room for the euro to weaken further, which would be a tremendous competitive boost for us.”
The exporters benefiting from the weak euro are a varied lot. There’s Glanbia (GLB:ID), one of the biggest dairy products companies in Europe, with revenues approaching €2.7 billion. The Kilkenny-based company makes 70 percent of its sales outside Ireland. If you’ve ordered pizza in Europe, you may have eaten Glanbia’s mozzarella. Likewise if you’ve recently had a grilled American cheese sandwich in the U.S., it may have had Irish roots. Glanbia said on Nov. 7 that the drop of the euro against the dollar will help lift earnings this year by about 18 percent. Then there’s conglomerate DCC (DCC:ID), which has revenues of about €11 billion. It’s based in Dublin but sells fuel across the U.K. It announced on Nov. 6 that the euro’s slide against sterling will boost full-year earnings by about 5 percentage points.
The multinationals that set up European headquarters in Ireland came for the 12.5 percent corporate tax rate, one of the lowest in Europe. They have also benefited from the weak euro, which lowers wage costs for American and British companies. U.S. multinationals in Ireland, which include Google (GOOG), Pfizer (PFE), Boston Scientific (BSX), PayPal (EBAY), and Apple (AAPL), employ about 120,000 workers there, and U.S. companies exported more than €100 billion in goods and services from Ireland last year.
Irish exports to countries outside the euro region amount to 65 percent of gross domestic product, compared with 23 percent on average for the euro area, according to the Irish Business and Employers Confederation. The Irish Exporters Association just raised its forecast for exports in 2012 to 6 percent growth, from less than 3 percent, saying revenue from outside Ireland will reach a record €183 billion this year.
It will be tougher next year. On Nov. 14, Ireland’s Finance Ministry said the weaker global economy would hurt exports in 2013. But Irish exporters have already survived plenty. “The difference between Ireland and elsewhere is we have a vibrant export sector,” says Alan McQuaid, an economist at Merrion Capital in Dublin. “It’ll be tough, and there are big risks out there, but I think we’ll avoid a second bailout.”