Is the Celtic Tiger stirring? Three years after Ireland's €67.5 billion ($NZ105.6 billion) financial rescue by the International Monetary Fund and the European Union, signs are the Emerald Isle is on the improve.
It's true unemployment remains at a painful 14 per cent. House prices are down 50 per cent from their construction bubble peaks and haven't bottomed out yet. Dublin's 2013 budget deficit is projected by the IMF to be 7.5 per cent of GDP this year.
The national debt is heading for a crushing 120 per cent of GDP. The Irish banks still aren't lending, even though they were rescued en masse by the Irish taxpayer in 2008 at a staggering cost of 40 per cent of GDP.
But compared to Greece, Spain and Portugal, which are all still contracting, Ireland is doing surprisingly well. It has eked out some GDP growth since the depths of the crisis, despite several rounds of Government spending cuts and tax rises. The economy grew 1 per cent last year, after 1.4 per cent in 2011. In March, the Government successfully issued €5 billion in 10-year debt, which is yielding just 3.5 per cent. This implies Dublin could finance itself independently when its rescue programme ends this year.
Dublin remains a firm favourite with the IMF, the European Commission and the European Central Bank for willingly taking its austerity medicine since 2009 and seeming to recover with it - one reason the ECB agreed in February to stretch out repayments on a major loan, easing the country's national debt burden.
So what has Ireland got that the other bailed-out economies of southern Europe lack? The answer is that Ireland has been helped by inward investment from multinational companies, attracted by its 12.5 per cent corporate tax rate introduced in 2003. Hundreds of multinationals have set up shop in Ireland over the past decade to benefit from the levy, much lower than the global average of 24.4 per cent.
Ireland's position in the EU and the eurozone also helps. The US technology giants Microsoft, Google and Facebook all use the country as a base from which to export throughout Europe. They sell advertising and other services in Europe and book their revenues and profits in Dublin.
The low corporate tax rate hasn't been the only lure. Special income tax breaks for executives recruited from abroad also act as an inducement.
Yet the 12.5 per cent tax rate is something of a red herring as many companies don't even pay that. Despite the influx of multinationals, the corporate tax take has declined from €5.16 billion in 2003 to €3.5 billion in 2011. This is because Dublin is very relaxed about companies registering their profits in Ireland then promptly shifting them out to other tax havens such as the Cayman Islands or Bermuda, sparing them the need to pay even the ultra-low domestic rate.
Google pays an effective rate of just €22.2 million on its €9 billion European profits that are registered in Ireland. Last year, the US Senate found that Irish subsidiaries helped Microsoft reduce its American tax bill by US$2.43 billion ($2.92 billion). Large amounts of multinational profits are washed through the country in this way. Ireland is a European tax haven, helping to suck away profit tax revenues that would otherwise accrue to countries such as the UK which badly need to balance budgets.
One can see the profound economic impact of multinationals in Ireland's official statistics. Normally a country's gross domestic product and its gross national product are roughly equal. Not in Ireland. Irish GDP took off like a rocket in the 2000s. GNP growth, by contrast, was rather less impressive. This is because GNP strips out non-Irish firms' profits. About a fifth of Irish GDP is actually profit transfers from multinationals.
GNP thus gives a more representative view of the fortunes of the domestic economy. Despite the smaller boom, GNP is still 8.7 per cent below its peak at the end of 2007. The presence of the multinationals also flatters Ireland's economy through the official export figures.
The bulk of Ireland's recent GDP growth is due to exports, which grew 3 per cent in 2012, hitting a record of €171 billion. Excluding the boost from net trade, the economy would have contracted by 20 per cent since 2010 rather than growing by 2.3 per cent.
Exports matter hugely to Ireland. They represent an astonishing 106 per cent of the country's GDP. Compare that with 20 per cent in Spain and 23 per cent in Greece.
Most of Ireland's exports are accounted for by non-Irish multinationals. And despite its substantial pharmaceutical manufacturing industry, most recent foreign sales growth has come from services - from €73 billion in 2007 to €88 billion in 2012, a 20 per cent increase. Goods exports have been flat, at around €83 billion over the past five years.
There is pressure from the eurozone to bring its corporate tax rate into line with the rest of Europe, but Dublin is determined to keep it. Politicians of all parties regard the rate as essential to its high inward investment economic model.
Despite the profit-shifting, some of the multinationals' revenues stay and benefit Ireland. Multinationals employ 150,000 people, 8.5 per cent of the workforce. Dublin's International Financial Services Centre, an agglomeration of banks and hedge funds, employs 30,000 people who have to live in the country and spend some of their lightly taxed salaries. But at what cost to other countries?
On paper, Ireland is achieving the economic rebalancing many are looking for. Domestic demand is contracting while exports are up. The current account deficit, which hit an unsustainable 5 per cent of GDP in 2007, is now a surplus. But a closer look shows the Celtic Tiger is restoring itself by beggaring its neighbours.
12.5 per cent Ireland's corporate tax rate
24.4 per cent global average corporate tax rate