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Ireland's economy has a split personality

Country A is drowning. Country B has a huge and growing trade surplus. Both countries are Ireland.
A woman walks past graffiti depicting Ireland's Finance Minister Brian Lenihan and Prime Minister Brian Cowen as the Blues Brothers Dublin
A woman walks past graffiti depicting Ireland's Finance Minister Brian Lenihan and Prime Minister Brian Cowen as the Blues Brothers in Dublin.Cathal Mcnaughton / REUTERS
/ Source: Reuters

Country A is drowning. A catastrophic recession has thrown a tenth of its workforce out of jobs in just two years. Firms are shutting, banks are barely solvent and the IMF has been called in to bail out the government from crushing debt. The standard of living is eroding, taxes are being hiked, state spending is being slashed, and the deeply unpopular government is being forced into an election it is certain to lose.

Country B has a huge and growing trade surplus. It is attracting a flood of international investment from global firms, building thriving hi-tech export industries. Exports grew this year by 6 percent and now amount to more than $50,000 per person. Taxes are low and staying low, and the English-speaking population is highly skilled.

Both countries are Ireland. And therein lies a tale, or rather two tales: of a domestic economy that is in tatters, side by side with a global export economy in the rudest of health.

In some respects, the success of Ireland's export economy obscures just how thoroughly ruined its domestic economy has been by the bursting of its property bubble in 2008.

Whole industries have completely vanished in a matter of months. Since government revenue depends mainly on domestic economic activity, the sudden fall in output has blown apart what were once exemplary public finances.

Once again, the Irish are leaving an island that seems unable to support them, a particularly resonant omen in a country that had finally reversed centuries of emigration.

But while all that misery has piled up, Ireland's "Celtic tiger" export economy has quietly continued purring.

The story has been often told of how Ireland was transformed in the 1990s from one of the poorest countries in Europe to one of the richest by attracting exporters, especially American firms who turned it into their base for European operations.

U.S. firms have invested more in Ireland than in Brazil, China, India and Russia combined, says Joanne Richardson, CEO of the American Chamber of Commerce.

The clout of those businesses was on display on Thursday when Finance Minister Brian Lenihan, fresh from announcing 15 billion euros in spending cuts and domestic tax rises, addressed the American Chamber of Commerce's annual Thanksgiving lunch.

In between the pork and pheasant terrine and the roast turkey, he reassured a ballroom full of U.S. business chiefs that Ireland's 12.5 percent corporate tax rate was untouchable.

That tax rate, far lower than in the other countries of Western Europe, has been Ireland's calling card in competing for international investment. It infuriates European neighbors that are now funding Ireland's bailout and think it competes unfairly with their higher rates, but it remains popular in Ireland.

Ireland's main political parties are committed to keeping it, and even argue with each other over who will do a better job defending the low rate from outside meddlers that want it hiked.

With growth slowing in the United States and Europe, Barry O'Leary, head of Ireland's investment promotion agency IDA, has his eyes on attracting investment from Asia. The IDA has opened offices in Mumbai, Shanghai, Moscow and Sao Paolo, and is opening new ones in Shenzen, Singapore and Bangalore.

Foreign firms are not frightened off by the chaos in the domestic economy, which does not really affect them since they don't rely on Ireland's domestic demand for customers or on its financial system for funding, he said.

"Ireland has such a strong track record of companies operating here and they are not caught up in the domestic financial system."

The IDA's O'Leary says foreign direct investment was responsible for 110 billion euros of Ireland's 159 billion in exports last year.

Carpenters out, engineers in
For the Irish, the biggest question is whether the foreign companies will be able to provide jobs. For now, they seem to be the only source of them.

Brian Murphy, CEO of the Irish branch of recruitment firm Morgan McKinley, Ireland's biggest professional recruiter, says job vacancies are now just half of what they were before the bust. Most of that loss has been among firms serving the domestic market, while demand for workers among multi-nationals has held up much better and is now growing.

Multi-nationals made up just 40 percent of the vacancies on Morgan McKinley's books before the crisis but now make up nearly two thirds, Murphy said. Employers are looking for computer programmers, experts in pharmaceuticals and life sciences, accountants, supply-chain managers and other skilled workers.

With unemployment at 14 percent instead of 4 percent, there are a lot more applicants for those vacancies, which is only good news for foreign firms who will now find Irish workers "more competitive in the wage space," Murphy said.

Richardson rattles off the names of U.S. firms that have announced plans to hire in Ireland in recent months: Ebay, IBM, Google, GE Healthcare, Covidien.

Facebook opened its office last year, hiring 200 people. Video game company Activision Blizzard hired 800.

Intel, whose $7 billion, 360 acre "center of manufacturing excellence in Europe" in county Kildare is perhaps the grandest monument to Ireland's export-driven boom, is looking for a Senior Silicon Validation Engineer and a Thin Films Deposition Engineer, among other vacancies.

That may be cold comfort for Irish bricklayers, plasterers, estate agents, carpenters and property lawyers who have been cast out of work in their thousands.

When and if the wider economy picks up, it remains to be seen how many of them will still be around. Last year saw the first net migration out of Ireland since the boom years, when Ireland attracted tens of thousands of foreign workers a year.

Bobby Stewart, 32, a fund valuer who lost his job four months ago, went down to the welfare office this week to take his name off the unemployment rolls after finally finding a new job with a pay cut of around 20 percent.

"If I hadn't got a job by Christmas, I would have moved to London. This was last ditch," he said. One of his close friends, a carpenter, had recently left for Australia.

"It's not just a case of waiting around. It's a case of maybe there won't be anything."