Bank Upheaval Tarnishes Ireland’s Glow

For decades Ireland has been a magnet for international finance and technology firms. Now, partly because of the financial crisis, it is losing that magnetism.

The International Financial Services Centre (IFSC) in Dublin was established in 1987 as part of a push to encourage multinational corporations to open operations in Ireland, marketed as the "gateway to Europe." Today the IFSC is a major location for international financial services, employing 25,000 people in the banking, brokerage and insurance industries, according to the Web site Finance Dublin. The likes of Google and eBay have their European headquarters in Ireland, and several top financial/IT firms operate call centers there.

By the mid-1990s Ireland had become the world's second-largest exporter of software after the U.S., a ranking it's still believed to hold, according to Pat Brazel, chairman of the Irish Software Association (ISA). "But that number was driven by the fact that Oracle, Microsoft and others had their non-U.S. revenues going through Ireland," he notes.

A corporate tax rate that generally is half that of the tax rate in the rest of Europe and one of the youngest and most educated populations historically made Ireland an attractive base of operations. But if you're not making profits, the tax rate you pay becomes irrelevant, and if you're reducing head count, the quality of the workforce is less of a benefit.

During recessions multinationals traditionally have preferred to cut jobs outside of their home markets — unless, as has become more popular recently, they are sending jobs offshore to the lowest-cost labor markets. Neither trend benefits Ireland currently.

Never a low-cost market, Ireland actually has veered toward being a decidedly costly market during the economic prosperity of the past decade. Reflecting the labor market, Dell announced in January that it would close one of its Irish facilities and transfer 1,900 computer-manufacturing jobs to Poland this year. It has been estimated that 10,000 jobs in the Limerick region could be lost from Dell's departure.

Bank Crisis Adds to Woes

Perhaps more worrisome for the local economy than labor arbitrage, "The banking crisis has made Ireland Inc. a toxic asset," in the words of Paul Kerley, founder, president and CEO of Norkom Technologies, an international financial technology supplier with offices in Dublin. The perception stems from a local property bubble that, in bursting, took 20 percent of the nation's gross domestic product (GDP) with it and left the government grappling with a sizable trade deficit. Kerley stresses that while this perception is undeserved, it is growing.

Less disconcerting, in the long term, for the Irish economy are job cuts that are part of a routine worldwide retraction by global firms. According to investigative journalism program Prime Time, nearly 200 IFSC jobs had been lost by late January and as many as 1,500 jobs in the IFSC ultimately could be cut.

But Felix O'Regan, a spokesman for the Irish Banking Federation, says a recent report showed that IFSC employment at the end of 2008 held steady with year-end 2007 levels. "Also, there are a significant number of companies where growth in employment is still expected in 2009," he adds.

Nonetheless Ireland remains appealing to multinationals because it is particularly good at absorbing diverse cultures, corporate and otherwise, suggests Billy Huggard, former ISA chairman and a publisher of computer magazines. (Ed. note: As of early 2008 90 percent of new jobs in Ireland were filled by immigrants, according to Ireland's Central Statistics Office.) "Integration issues are not as difficult here," Huggard claims.

And there are some optimistic signs: In the eye of the financial storm this past October, Facebook opened its non-U.S. headquarters in Dublin. And Google spoke in 2008 of plans to expand significantly in Ireland.

Yet the uncertainty of the times was exemplified by Intel, which stated publicly in January that it would not cut jobs in Ireland, then announced in February that up to 300 jobs would be eliminated in the region as part of some 6,000 company layoffs worldwide. The future of New York-based Citi ($1.94 trillion) also could help determine Ireland's fate as a financial services center. The bank is Ireland's largest foreign financial employer, with 2,085 staff, mostly in the IFSC. With a total workforce of 2.1 million (of a population of 4.5 million), Ireland's economic health could take a significant hit if Citi were to reduce its local presence.