The Impact of EU Membership on Irish Businesses: Challenges and Opportunities

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Table of Contents

Introduction
The positive effects of the membership in the European Union
The negative associated with the European Union
Discussion
Conclusion
Works Cited

Introduction

The economic development of Ireland is closely tied to the country’s membership in the European Union. This paper is aimed at discussing the effects of the EU policies on various businesses in this country. In particular, one should examine their positive and negative implications. This issue is of great importance nowadays because at present Ireland faces considerable challenges such as unemployment which was 14.8 percent in 2012 (Dufy and Casey 38).

Furthermore, the growth of Ireland’s GDP has slowed down in comparison with previous years. Economists forecast that the GDP will grow only by 2.1 (Dufy and Casey 38). In contrast, before 2007, this rate was more than 7 percent. Moreover, the policies of the European Union are criticized by many political activists and entrepreneurs. This is why it is important to examine the influence of the European Union on the work of various businesses in Ireland.

On the whole, it is possible to argue that at a certain point, the membership in the EU did contribute to the growth of Ireland’s economy. For instance, local businesses benefited from foreign direct investment (FDI), improved infrastructure, and the ability to enter new markets in other countries.

This is why one can speak about the beneficial impacts of the European Union. Nevertheless, one should not forget about negative effects such as increased inflation and growing competition from the countries which joined the EU at the beginning of the twenty-first century. Apart from that, it is vital to mention that Irish bankers emulated some of the risky practices that were widely adopted in other parts of the EU as well as the United States.

Finally, the crisis of the Euro decreased the availability of credit of many entrepreneurs who could not start new business projects. These are the main questions that should be examined more closely. On the whole, the in-depth understanding of these questions is important for developing the policies that can help Ireland cope with the effects of the global recession.

The positive effects of the membership in the European Union

It should be mentioned that Ireland can be described as a knowledge economy which means that this company working in this country offer innovative products that are based the use on modern technologies (Gunnigle, Heraty, and Morley 653). Moreover, the competitiveness of such organizations strongly depends on the knowledge and expertise of their employees. This is one of the distinctions that should be taken into consideration.

The products offered by these organizations enjoy significant demand in many countries (Gunnigle, Heraty, and Morley 653). For a long time, it was believed that Irish companies had been well integrated into the global market. Additionally, Ireland has one of the lowest corporate taxes in Europe (Gunnigle, Heraty, and Morley, 664).

This is one of the reasons why the country achieved a significant degree of growth during the Celtic Tiger Era that lasted from 1995 to 2008. These are some of the factors that should be considered to explain the growth of many Irish businesses and the difficulties that they currently face. More importantly, they are important for finding solutions to the economic problems which manifested themselves after 2007.

One should note that the impact of the European Union has not been only negative. Such an assumption can hardly be called accurate. For instance, one should take into account that the membership in the European Union gave local businesses access to many new markets.

While analyzing the development of the Irish economy, researchers note that before joining the EU in 1973, approximately 70 percent of Irish exports went to the United Kingdom (Fitz Gerald 1354). In other words, Irish businesses were strongly dependent on the economic and trade policies of a single foreign country. To a great extent, their position was very vulnerable.

Nevertheless, EU membership changed the situation dramatically. For instance, at the beginning of 2001, the exports to the UK constituted only 20 percent of total Irish exports (Fitz Gerald 1354). This is one of the main changes that can be singled out. The membership in the European Union enabled Irish businesses to find more customers. This is one of the factors that contributed to the profitability of these organizations. This period of growth has been described as Celtic Tiger Era or the period of rapid economic growth.

Additionally, it is vital to remember that the membership in the European Union has increased the flow of foreign direct investment into the country. This capital boosted the growth of various industries related to manufacturing (Gunnigle, Heraty, and Morley 657). For example, one can mention the production of electronics, chemicals, and other products that involve the use of advanced technologies. This is another positive impact that should not be overlooked.

Apart from that, local companies were able to achieve growth because they could use the technologies that were previously not available to them. One should keep in mind that the European Union-facilitated the flow of labor, capital, and technologies across various member states. To some degree, this flow created many opportunities for various enterprises, including Irish businesses. This is one of the reasons why Ireland is often described as a knowledge economy.

It is possible to argue that the increased flow of FDI can also be explained by the policies of the government. In particular, they lowered corporate taxes, and many financial organizations chose to invest in Irish businesses. This is why many of the local companies became more competitive. This is one of the main aspects that should be considered while examining the impacts of the European Union.

Apart from that, the investment, which was derived from the European Cohesion Funds (EFC), was used to redevelop the infrastructure of the country (Gunnigle, Heraty, and Morley 660). In particular, one should speak about ports, railroads, airports, and so forth. These improvements created new opportunities for entrepreneurs.

For instance, they could ensure the effective transportation of their goods across the country. This issue should not be disregarded because businesses can function more effectively if they do not have to cope with problems related to infrastructure. Again, these improvements can mostly be attributed to the membership in the European Union.

Moreover, these construction projects involved a great number of small and medium-sized businesses that benefited from working as the suppliers of the government. They could increase the volume of their output and strengthen their position in the market. This is another aspect that is often discussed by economists who support Ireland’s membership in the European Union.

This is why one should not suppose that the participation in this economic and political alliance did not bring any improvements. Such a view can hardly be substantiated. Certainly, these improvements cannot be attributed only to the European Union. One should not suppose that Ireland implemented many changes in the legislation which contributed to the growth of many businesses.

For instance, one should speak about the reduction of the corporate tax rate that was much lower in comparison with countries that represented the EU. This policy is not directly related to the country’s membership in the EU. More importantly, it helped many businesses to attain substantial growth. These are the main factors that contributed to the boom of the Irish economy.

Furthermore, this growth can be partly explained by the fact that the Irish workforce and managers had sufficient skills to launch and maintain high-tech companies. This is another factor that could have played a vital role. However, the period, which is called the Celtic Tiger Era, is closely connected with the decision of the Irish government to join this economic and political alliance. These are some of the positive impacts that were brought by the EU. It created various opportunities for Irish entrepreneurs who could start new businesses.

The negative associated with the European Union

Nevertheless, one should remember that the policies of the European Union have also produced some adverse effects on the economy of Ireland. One of the main problems that researchers pay attention to is the inefficiency of monetary laws that are imposed on Ireland (Fitz Gerald 1363). Economists believe that at the beginning of the nineties, the countries representing the EU were deprived of the ability to conduct independent monetary policies (Fitz Gerald 1363).

However, this approach lacks flexibility because it does not take into account the peculiarities of different countries. This problem was identified long before the crisis of 2007. So, it is possible to speak about the inefficiencies of supranational government which cannot always take timely measures to avoid possible pitfalls.

Moreover, this monetary policy significantly contributed to the inflation of wages. It should be mentioned that the inflation rate in Ireland was higher than in such countries as Germany or France (Fitz Gerald 1363). The purchasing power of many Irish customers began to decline while local businesses found it difficult to sell their products and services. This is one of the main impacts that should be taken into consideration.

Moreover, both businesses and clients became more dependent on the availability of credit. Therefore, the role of the financial industry increased, and the executives of many banks began to conduct many risk operations (O’Connor 21). This is one of the main points that should be kept in mind. It is vital for understanding the financial crisis that affected the Irish economy and the representatives of various industries. This is one of the key factors that should be taken into account.

Additionally, one should note that the expansion of the European Union because this trend weakened the competitive positions of Irish companies. For instance, the inclusion of such states as Poland, Romania, Estonia or Latvia diverted a significant part of foreign direct investment that could previously be brought to Ireland. Additionally, some companies that previously worked in Ireland chose to work in these states.

It should be noted that such a corporation as Dell and Microsoft preferred to cooperate with Irish IT companies. However, some of these international corporations chose to end their cooperation with Irish firms because they decided to outsource their business tasks to companies from Estonia, Latvia, and other states which had joined the EU in the twenty-first century. Researchers argue that the rapid economic growth of Ireland can be attributed to low taxes (Gunnigle, Heraty, and Morley 664).

This is why this country looked very attractive to foreign investors. However, new members of the European Union imitated this strategy and tried to attract foreign investors by emphasizing the fact that their labor force was less expensive. This is why the position of many Irish businesses was threatened.

Therefore, this internal competition within the EU contributed to the decline of the Irish economy, which could no longer distinguish itself among others. Before, the crisis, many economists noted that approximately one-third of Irish industrial workforce were employed in companies that were dependent on foreign direct investment.

Similarly, these organizations produced more 55 percent of the total industrial output (Gunnigle, Heraty, and Morley 658). In turn, the lack of investment decreased the profitability of local firms and made a great number of workers redundant. The growth which was observed during the Celtic Tiger Era began to slow down. This is one of the details that should be considered.

Additionally, researchers often focus on the effects produced by the neoliberal policies that were developed after Ireland joined the European Union. It should be mentioned that the role of trade unions began to decline significantly during the Celtic Tiger Era. One of the dominant views was that these organizations only hindered the growth of companies (O’Connor 21). On the one hand, this tendency contributed to the increased profitability of various businesses.

However, at the same time, the bargaining power of workers began to decline (O’Connor 21). It is also vital to remember the policy of wage moderation, which means that wages of employees grew at a very slow pace (O’Connor 21). Overall, this strategy was supposed to increase the competitive strength of local firms. The main issue is that the purchasing of local customers declined and Irish companies became too dependent on exports, while the role of domestic market diminished.

So, in the long-term, many Irish companies became less sustainable. This impact is important for analyzing the origins of the crisis. To some degree, this policy was adopted in other countries of the EU, and in Ireland, this tendency was very prominent. However, in the long term, it produced negative effects on various markets in Ireland. This is one of the main details that are important for describing the decline of the Irish economy.

One should take into account that the membership in the European Union adversely affected several areas of the Irish economy. In this case, one should pay attention to those firms that were specializing in agricultural production.

Researchers pay much attention to such fields as milk production, food processing, poultry, or livestock (Barry 75). These businesses had to face strong competition from firms that were bused in Poland, the Czech Republic, Hungary, and other states from Eastern Europe. This is one of the risks that economists spoke about before the crisis.

To a great extent, the membership in the European Union underlined those sectors of the Irish economy, which were less competitive. One can say that this effect is the inevitable outcome of establishing the policies of free trade. Certainly, at the time, when the Irish economy passed a period of very rapid growth, this result was not perceived as something very negative.

Policy-Makers overlooked the notion that thousands of people, especially farmers, were displaced because the country opened its markets for foreign agricultural businesses that gain competitive advantage because of their less expensive labor costs. This is one of the aspects that should not be overlooked.

It is not closely discussed by the supporters of free trade and neoliberal policies established in many countries. As a rule, they prefer not to speak about those industries that were adversely impacted by Ireland’s membership in the European Union. Therefore, it is possible to argue that participation in the open market also leads to some negative effects.

Additionally, the Irish economy became exposed to one of the trends that were popular in many European countries. For instance, one can mention the increased investment in the property market (O’Connor 22). As a result, many Irish companies brought capital in this sector of the economy and diverted cash-flow other businesses that could have created more value. It is vital to remember that the housing bubble was not directly caused by the policies of the European Union administration.

However, this outcome originated from the desire of Irish investors to emulate the practices adopted in the countries EU and the United States. This impact should not be overlooked because it suggests that many Irish entrepreneurs were affected by the trends that emerged in other parts of the European Union.

Nevertheless, it was not the direct result of policies imposed on Irish financial institutions. More likely, this outcome can be explained by the lack of risk management strategies that could have helped these organizations avoid many pitfalls. This is one of the main arguments that can be put forward.

When speaking about Irish businesses, one should focus on the work of financial organizations. The membership in the European Union enabled these organizations to reduce their interest rates (O’Connor 22). These factors contributed to the irresponsible lending practices and their increasing exposure to the housing market, which was booming in Ireland. Additionally, consumers began to rely on credit, and household debt in Ireland increased.

As a result, these organizations exposed to various risks such as the decline of prices on housing. Certainly, it is not possible to say that this problem is the result of the policies imposed on Irish banks. One can say that this outcome can be attributed to the irresponsibility of managers or lack of risk management strategies. However, the policies emerged when Irish banks were fully integrated into the financial sector of the European Union.

Moreover, the financial crisis led to the increased economic insecurity of many people and an increasing national debt of Ireland. Apart from that, it was more difficult for small companies to receive a credit that could help them increase the volume of production. Therefore, financial crisis hindered the growth of Irish companies. This is another impact that should not be disregarded. To some degree, various negative factors produced a cumulative effect on the economy of Ireland. Moreover, this effect proved to be almost devastating.

Discussion

This analysis suggests that the membership in the European Union brought significant changes in the economic life of Ireland. First of all, it greatly contributed to the development of high-tech companies in this country. These organizations greatly benefited from the increased FDI and ability to share technologies and resources with foreign firms (Gunnigle, Heraty, and Morley 653). They also derived many opportunities from the ability to enter new markets.

They became less dependent on the customers from the United Kingdom (Fitz Gerald 1354). These factors contributed to the growth of many industries. To some degree, neoliberal policies and the membership in the EU enabled entrepreneurs to start new businesses or increase the volume of their output. Nevertheless, the expansion of the EU undermined the competitive strength of many Irish businesses since they had to face the rivalry of firms located in Eastern Europe.

Irish economy could no longer attract FDI only by establishing low corporate tax. This is one of the most important obstacles that limited the growth of Irish companies. Additionally, many businesses, especially those that were working in agriculture, could not withstand the competition of foreign companies. This is why their role declined. It is also vital to mention some indirect results of membership in the EU.

For instance, financial institutions of the country became less sustainable because they relied on the housing market of the country. Moreover, investors were also willing to bring capital mostly into the property market while overlooking other sectors of the economy. Therefore, the functioning of the economy became less effective (O’Connor, 21). Nevertheless, despite these problems, one cannot argue that membership in the EU did not facilitate the growth of Irish businesses. Such an assumption can hardly be called accurate.

Certainly, it has to be admitted Ireland was among the first countries in the EU that asked for financial assistance. At present, the government intends to develop strategies that can help local businesses recover from the effects of the economic crisis. However, one cannot say accurately when these problems can be overcome. It is vital to remember that the development of the economy is cyclical, and economic crises are inevitable in many cases.

Thus, it is possible that Irish businesses will be able to cope with the effects of rec the session. For instance, economists note that there has been some increase in the flow of foreign direct investment into the country (Dufy and Casey 38). Nevertheless, the process of economic recovery will be very time-consuming. This is one of the main arguments that can be made.

Conclusion

These examples indicate that membership in the European Union has produced different effects on the work of Irish businesses. One can even say that this influence varied significantly with time passing. In previous decades, these companies passed a period of rapid growth, which was caused by the elimination of barriers to free trade.

Nevertheless, the expansion of the European Union undermined the competitive position of Irish businesses that found it more difficult to attract investors and businesses partners. Additionally, the inability to control monetary policies increased the financial instability of the country. It should be noted that the development of the economy is cyclical, and it includes periods of growth and decline. Therefore, one should not suppose that there is a single cause or factor that can explain the development of an economy.

Works Cited

Barry, Frank. “Competitiveness Implications for Ireland of EU Enlargement.” Journal of the Statistical and Social Inquiry Society of Ireland 32. 3(2003): 70-.97. Print.

Dufy, David, Joseph Durkan, and Eddie Casey. “General Assessment Of The Irish Economy.” Quarterly Economic Commentary (2012): 38-43. Print.

Fitz Gerald, John. “Managing An Economy Under EMU: The Case Of Ireland.” World Economy 24.10 (2001): 1353-1371. Print.

Gunnigle, Patrick, Noreen Heraty, and Michael Morley. “Doing Business in the Republic of Ireland.” Thunderbird International Business Review 44.5 (2002): 649-74. Print.

O’Connor, John. “Slaying The Celtic Tiger.” Against The Current 26.1 (2011): 21-22. Print.

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