What happened to the 'Celtic Tiger?'

After almost eleven years in power, Bertie Ahern this week steps down as the Irish Taoiseach to be replaced by Brian Cowen, the current finance minister. 

Cowen, a technocrat with a safe pair of hands, will face a number of difficult economic challenges upon taking office:

• The 'Celtic Tiger' -– the recent period of rapid economic growth in Ireland -- is no longer burning bright. This was caused by the dramatic collapse in residential investment and the consequent contraction of the construction sector.  With slower growth and less tax revenue, the Irish government is currently running a fiscal deficit, projected to be around 1.8% GDP in 2008.    
• While the malaise in the Irish housing market is expected to ease more quickly than in the UK, a prolonged global downturn will place Cowen's coalition government under increasing pressure to bring its finances back to a more sustainable level.  Yet with the public already angry about the poor state of public services, attempts to cut public spending are likely to damage the ruling coalition's popularity.

Faced with these pressures, it is widely expected that Cowen -- who, like Ahern, is a member of the republican Fianna Fail party -- will seek to forge closer political and economic links with the North. 

This week, by coincidence, also sees a handover of power in Northern Ireland as Ian Paisley gives way to his long-time deputy Peter Robinson.  Despite Robinson's reputation as a Unionist hard-liner, he and Cowen are thought to have a good personal relationship.   Last month, Cowen announced a plan to provide incentives for financial services companies operating out of Dublin to set up satellite operations in Belfast. 

The deal -- negotiated jointly between Cowen and Robinson -- augurs well for future economic cooperation between Belfast and Dublin and the attraction of inward investment.  However, in the long term, both the North and the Republic will have to confront concerns about their international competitiveness -- even if they can operate as an increasingly integrated island economy.