US embassy cable - 04DUBLIN1672

UNCLAS SECTION 01 OF 02 DUBLIN 001672 
 
SIPDIS 
 
SENSITIVE 
 
TREASURY FOR CURRY, MEYER, GREWE 
FOR SECRETARY SNOW FROM AMBASSADOR KENNY 
 
E.O. 12958: N/A 
TAGS: OVIP, ECON, PREL, ETRD, EINV, PGOV, EU 
SUBJECT: SCENESETTER FOR TREASURY SECRETARY SNOW'S NOVEMBER 
14-15 VISIT TO IRELAND 
 
 
1.  (SBU) Summary: The Irish Government and Embassy Dublin 
warmly welcome your upcoming visit to Dublin.  Past and 
present Irish policy-makers look forward to substantive 
discussion with you on the dramatic transformation of 
Ireland's economy.  I am planning a dinner in your honor that 
will include EU Commissioner-designate and former Irish 
Finance Minister Charlie McCreevy.  You will also meet with 
Prime Minister Bertie Ahern, Finance Minister Brian Cowen, 
and other "architects" of the Celtic Tiger economy.  Besides 
explaining Ireland's economic achievements, these leaders 
will likely question you about the recent U.S. elections, 
particularly the implications for Europe.  Ireland sees 
itself as a bridge between "Boston and Berlin," and your 
interlocutors will seek the second Bush Administration's 
views on strengthening the trans-Atlantic relationship.  End 
summary. 
 
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Ireland -- A Confident EU Member State 
-------------------------------------- 
 
2.  (SBU) Ireland's economic and diplomatic successes have 
boosted the country's standing in the EU and have given Irish 
citizens unprecedented national confidence.  In less than a 
generation, Ireland has grown from one of the poorest EU 
Member States to one of the richest (in GDP per capita), 
largely on the strength of government policies that espoused 
open trade and investment, low corporate taxes, good labor 
relations, low government debt, and prudent use of EU support 
funds.  Although the Celtic Tiger stumbled somewhat with the 
post-9/11 global slowdown, a surge in housing construction 
has Ireland on track to achieve roughly 5% annual GDP growth 
in 2004, the highest in the EU.  Moreover, Ireland won high 
marks in Europe for its recent EU presidency, which saw the 
accession of ten new EU member states, the successful 
negotiation of the EU Constitutional Treaty, and the launch 
of the U.S.-EU Trans-Atlantic Economic Partnership.  These 
accomplishments have contributed to Ireland,s self-image as 
an effective broker within the EU and a role model for new EU 
Member States. 
 
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Links with the U.S. 
------------------- 
 
3.   (SBU) While Ireland is a player in the EU and continues 
to benefit from EU markets and support funds, Irish leaders 
attach equal importance to relations with the United States. 
Beyond long-standing cultural ties, U.S. trade and investment 
have been the twin engines of the Celtic Tiger economy, as 
you will likely hear in your discussion with the American 
Chamber of Commerce.  There are roughly 570 U.S. firms 
operating in Ireland, employing over 90,000 people and 
accounting for a third of Ireland,s annual exports.  These 
firms include most major biotechnology, IT, and financial 
services companies, which use Ireland as a gateway to EU 
markets.  Last year, new U.S. investment in Ireland reached 
$9 billion, compared with $3.8 billion in China.  The central 
role that U.S. businesses have played in Ireland's economic 
transformation, however, is a story not often told by the 
Irish media, which tend to take a negative view of the United 
States, particularly our efforts in Iraq. 
 
-------------------- 
Political Background 
-------------------- 
 
4.  (SBU) Ironically, the party that has led Ireland through 
most of the Celtic Tiger era, Fianna Fail, has seen a recent 
erosion in its political support.  In the June 2004 local and 
European Parliament elections, Fianna Fail lost a number of 
seats to opposition parties, led by Fine Gael and the upstart 
Sinn Fein.  Commentators attributed Fianna Fail's poor 
showing to the electorate's sense that not all segments of 
society have shared the benefits of the Celtic Tiger economy, 
as reflected in growing crime rates and other social 
problems.  In a bid to re-energize the party and government 
ahead of the 2007 general elections, Prime Minister 
(Taoiseach) Bertie Ahern re-shuffled his cabinet in late 
September.  The move presages an effort by Fianna Fail to 
recast its image as a party more attuned to social concerns. 
 
--------------------- 
The Government Budget 
--------------------- 
 
5.  (SBU) Estimates for the 2005 government budget, to be 
released on November 18, will set forth Fianna Fail's 
economic priorities in its bid to rebuild political support. 
Although a budget deficit was originally forecast for 2004, 
increased revenues tied to economic growth and one-off tax 
collections on off-shore bank accounts will yield a year-end 
budget surplus of 0.3 percent of GDP.  Some ruling party 
members have pressed new Finance Minister Brian Cowen to use 
this unexpected windfall to address hot-button social issues, 
including Ireland,s dysfunctional health care system and 
outdated transportation infrastructure.  The Irish Central 
Bank and most economists, however, have cautioned against 
steep increases in government spending that could fuel 
inflation, particularly with robust GDP growth predicted for 
2005.  In recent public comments, Minister Cowen has 
indicated that that the budget will offer tax relief for 
lower income groups, but will avoid inflationary pressures 
that could raise wage demands and erode Ireland,s 
competitiveness. 
 
------------------------------------ 
Competitiveness -- The Central Focus 
------------------------------------ 
 
6.  (SBU) Maintaining Ireland's economic competitiveness is 
increasingly the focus of the Government as it attempts to 
safeguard the prosperity achieved during the Celtic Tiger 
period.  Although inflation in 2004 has converged toward the 
EU average of roughly 2%, EU studies indicate that Ireland is 
now the most expensive country in Europe.  Ireland's 12.5 
percent corporate tax rate remains a powerful draw for 
foreign direct investment.  Over the longer term, though, 
Ireland will face challenges in competing with alternative 
FDI destinations such as China, India, and the EU accession 
states, which boast educated, low-wage workers and 
opportunities for low-cost manufacturing.  Several 
government-commissioned task forces have advocated a strategy 
whereby Ireland would move increasingly out of simple 
manufacturing operations and into innovative, higher-value 
goods and services.  This strategy will require an education 
system that can produce graduates with skills in technology 
and physical sciences to support a knowledge-based economy. 
At Dublin City University, you will be able to speak with 
faculty and students about the role of academia in sustaining 
Ireland,s economic success. 
 
----------------------------- 
Northern Ireland Negotiations 
----------------------------- 
 
7.  (SBU) Negotiations on a final settlement for Northern 
Ireland are likely to intensify during the week of your 
visit.  The British and Irish Governments are preparing a 
proposal for Northern Ireland's unionist and republican 
political parties on a settlement that would restore Northern 
political institutions over the coming months.  This proposal 
will likely build upon progress that was achieved in the 
September Leeds Castle talks, where Sinn Fein signaled the 
IRA's willingness to cease paramilitary activity and 
decommission weapons as part of a final deal.  Northern 
Ireland is the fastest growing region in the UK, and a 
political settlement would help to accelerate growing 
inter-Ireland trade and investment. 
KENNY