Ireland suffered a catastrophic economic collapse during the Eurozone crisis, yet within just a few years, the country managed to secure a rapid economic and reputational recovery. Desmond Dinan writes that Ireland owes much of its success to what could be called ‘small-state-ism’ – the ability to leverage its status as a small member state to its advantage.
International relations can be unkind to small countries. A Hobbesian system is the worst. At the other extreme, the European Union is the best possible place for a small state to be.
In principle, the EU cherishes the equality of its members. National leaders sit as peers around the head table at meetings of the European Council. In practice, the big member states – notably France and Germany – are more equal than others. But that is a trifling price for small states to pay given the benefits that EU membership provides.
Ireland is a small EU state, though not the smallest. It occupies a category of countries that includes, for instance, Estonia, Finland and Greece. Intrinsically, small states have limited influence in the EU. They lack large diplomatic services and have relatively constrained administrative capacities. Even if economically weighty, they do not have the commercial and financial firepower of most of the big states.
Ireland has been a member of the EU and its predecessor, the European Community, since 1973. The most remarkable thing about Ireland in the intervening years is that, thanks to EU membership, it experienced an extraordinary transformation from poverty to prosperity. By the early 1990s, due largely to a huge infusion of EU funds, Ireland became the ‘Celtic Tiger’.
The second most remarkable thing about Ireland in the EU is not simply how far and how fast the country fell during the crisis of 2009-13, but how rapidly it recovered economically and reputationally. What explains Ireland’s spectacular rehabilitation? In part, it was due to how well Ireland played what looked like a weak hand: its small size as an EU member state, something that could be called ‘small-state-ism’. Three examples stand out: Ireland’s defence of corporate tax minimisation, which is beloved at home but regarded with suspicion abroad; Ireland’s rapid emergence from the financial crisis; and Ireland’s highly successful Brexit strategy.
Ireland has long had one of the lowest rates of corporate tax among developed economies: 12.5%. Together with the influx of EU funds, this was central to the emergence of the Celtic Tiger. It was also central to Ireland’s post-crisis recovery. However, by the mid-2010s Ireland’s policy of corporate tax minimisation had incurred the wrath of the European Commission and many of the big EU countries. Ireland faced uncomfortable insinuations of being a tax haven.
One of the arguments Ireland deployed against its critics was that small countries have relatively few vital interests which, precisely for that reason, must be defended tenaciously. Practicing the art of small-state-ism, as well as deflecting the issue from the EU into the more agreeable arms of the Organisation for Economic Cooperation and Development (OECD) – a larger, unwieldy forum for international economic affairs – Ireland asserted that corporate tax minimisation, a central plank of the country’s development strategy, should be respected and protected. Grudgingly, the big member states relented.
The economic collapse of 2010 was so extensive that Ireland accepted a joint EU-IMF bailout. This was traumatic for a country that had soared in the previous decade. Ireland’s priorities were clear: accept the medicine of austerity that accompanied the financial rescue and repay the EU and IMF loans as quickly as possible. By 2013, Ireland had done so, thanks in no small part to tax minimisation, which continued to entice US multinationals to establish their international headquarters in Ireland.
As part of its reputational rebuilding, Ireland played the small-state card. Germany, the EU’s biggest country, had set the rules for austerity; Ireland, a small state, complied without complaint. Ireland portrayed itself as the EU’s model member state; a poster child for post-crisis conformity, despite the anomaly of its corporate tax strategy.
Adding to Ireland’s lustre was Greece’s bad behaviour, as Athens resisted implementing austerity measures in return for a third bailout, in 2015. Ireland’s centre-right government projected the image of a constructive, contrite small member state in contrast to uncooperative Greece – another small member state, but a deviant one under a populist, left-wing government. Germany’s centre-right Chancellor, Angela Merkel, was highly receptive to Ireland’s argument.
The surest sign of the success of its reputational rehabilitation was the election in 2020 of Ireland’s finance minister as president of the influential Eurogroup of finance ministers, and re-election in 2022. According to the Taoiseach (Prime Minister), this represented nothing less than the attainment of a core national interest and made Ireland the envy of other small EU states.
Even before the surprising outcome of the 2016 UK referendum, Ireland was preparing for the worst. After the referendum, Irish diplomacy went into overdrive. The goal, understandably, was to win the full support of the EU27 – the existing members minus the UK – and the EU’s institutional leaders as they negotiated a Brexit agreement that would fully address Ireland’s concerns about the security and economic situation on the island of Ireland once the UK left the EU.
Irish officials describe their success as a triumph of diplomacy. It was not a heavy lift. Again, Ireland played the small-state card: the EU had an almost sacred obligation to stand by one of its smallest and most vulnerable members at a time of near-existential crisis. Ireland pushed against an open door.
Not least because of the UK’s obduracy, the other members were eager to oblige. What better way to show what the EU really stood for than by supporting Ireland unreservedly. In self-congratulatory fashion, the EU demonstrated its commitment to equality, solidarity and unity. Here was a happy antidote to the heavy-handedness of the euro crisis.
Small states do what they can to maximise their influence in international relations, including in the EU. Ireland excels at this, in part by turning an inherent weakness into a strength. Small-state-ism is the art of the possible, often in the most improbable circumstances.
Note: This article gives the views of the author, not the position of EUROPP – European Politics and Policy or the London School of Economics. Featured image credit: European Union