Why the Irish model wouldn’t work for Spain

By Luis Arroyo, in Madrid | Ireland has began to get out of the pit of its crisis and the usual suspects have wasted no time in coming back to tell Spain that it can be done, austerity only is the key.

Ireland has gone through a fair amount of pain just to get its head above the water line. A bad bank with the wrong estimations and a bailout whose cost was to be assumed by the Irish taxpayers in solitary (there has been no haircut as in the Greek case) may have helped Ireland to find the light at the end of the recession tunnel. One might add, though, that it is finally recovering precisely when all its European markets are contracting, so the usefulness of it all could turn out to be debatable.

The question, nevertheless, is that the praiseworthy Irish model of production isn’t quite applicable to Spain. The Irish is an economy that has been modernised by means of attracting foreign investment via a very favourable fiscal pressure on capitals. Think of Ireland as an aircraft carrier in the Atlantic ocean at which foreign capital land generating high rates of productivity but sending back home most of its value.

The Irish workforce, on the other hand, are aware that this scheme has increased the nation’s wealth so they accept salaries that are very competitive internationally. The government cleverly keep taxes light and contributions to the welfare system are low, something Spain would do well to learn from.

Importantly, Ireland is a small, socially compact country with a 5-million population or an 8th of Spain’s. The Irish production, as a consequence, is focused on the export side of the deal instead of domestic consumption.

That is why Ireland sends out a quarter of its production: check the charts and you’ll find that the difference between GDP and national income is of 25 percent of total income and 24 percent of per capita income. In Spain, that figure is barely a 1 per cent.

The Irish solution, which is a cruel one, wouldn’t work for Spain.

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