Photographer: Tomi Setala/Bloomberg

Euroland Extremes: Roaring Tigers and Stagnant Finns

Why are Ireland and Finland at opposite ends of the euro area’s growth spectrum?

One was bailed out, the other went from being an “economic miracle” to “the new sick man of Europe.” 

While they share what some say are the shackles of the common currency, the performance of Ireland and Finland since the financial crisis couldn't be more different. 

After posting a jaw-dropping growth of 7.8 percent in 2015, the Celtic Tiger is forecast to expand at the fastest pace in the euro zone this year -- 4.7 percent -- according to a survey of Bloomberg economists (It is worth pointing out here that while the presence of multinationals distorts Ireland's GDP figures somewhat, the country is also experiencing employment growth rates of about 3 percent per year).

Finland, on the other hand, continues to disappoint. Having trailed the euro-zone average since 2012, its gross domestic product is forecast to grow at a mere 0.5 percent this year, the lowest rate after Greece’s. Unemployment, meanwhile, is expected to have peaked at 9.4 percent in 2015.

The collapse of Nokia's consumer electronics business and a struggling paper industry are regularly cited as reasons for Finland's woes. Standard & Poor's has stripped the Nordic country of its AAA rating while boosting Ireland's from its 2012 low of BBB+.

Finnish critics of Europe’s common currency argue that their country would be faring much better if only it were allowed to boost exports through devaluation. The Irish comparison suggests that what you sell -- and where -- are crucial. While Ireland counts on exports of computers and pharmaceuticals to the U.S., Finland is struggling as one of its once largest export markets, Russia, is mired in a recession.

Ireland, unlike Finland, has also used the tax code to help persuade major multinationals such as Facebook, Apple, Google, Pfizer to set up shop there. Finland's corporate tax rate is at 20 percent, while Ireland's is 12.5 percent, one of the euro area's lowest. Finland's foreign direct investments even went negative in 2013, as its companies sought investments abroad rather than at home.

The government argues that a lack of competitiveness is also responsible for rising unemployment, which reached 9.4 percent in 2015, compared with 7.7 percent in 2012. Its favored solution is to bring down labor costs.

If only Finland would live up to its promise. A ranking by the World Economic Forum suggests that the Nordic country is still one of the most competitive in the world, although Ireland has the edge when it comes to labor market efficiency.

 

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