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opinion

PETER MUHLY

The Celtic tiger phenomenon was not a illusion, in spite of the Irish government's impending insolvency; for the past 20 years or so, Ireland has had mostly good economic policies. When the financial crisis struck in 2008, however, the Fianna Fail-Green coalition government unwisely took on most of the liabilities of the country's overleveraged banks - much more than Irish taxpayers can afford to guarantee.

The Irish Republic came into the European Economic Community in 1973 as its poorest member. A remarkable quarter-century of productivity growth followed, accompanied by a low income-tax rate for corporations, encouragement of education, moderate wage levels, shrewdly selective incentives to attract foreign companies - not the regional-development pork-barrelling of the kind familiar to Canadians - and reversal of the long-term depopulation that went back to the potato famine of 1845-1849.

It is true that the new prosperity also led to a real-estate bubble, in which Irish banks took full part by creating far too much credit, but that is not an argument against economic well-being.

Consequently, the Irish should not alter the policies that made them successful. They should keep the 12.5-per-cent corporate tax rate, though some EU governments complain of this as unfair, "predatory" competition.

On the other hand, financial-institution weaknesses, at the root of the crisis, should be corrected. Bank liquidity should be sustained so as not to choke off credit, but the bondholders of the troubled Anglo Irish Bank must accept some writedowns, as they now appear ready to do. Public-sector pay, which has risen far out of proportion to GDP for a decade, should be reduced. Value-added tax needs to be raised by a couple of points.

None of this will solve the conundrums of sovereign default in the euro zone, but the EU equivalent of Canada's fiscal federalism can wait. The Irish troubles need a specific cure; Greece's ills, for instance, with tax-ignoring citizens but solid banks, are very different.

Ireland should not be seen as an extinct subspecies of tiger.

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