With Ireland’s banking sector largely nationalized and the lending standards raised to stop the excessive bank losses fewer and fewer businesses are able to find the funding that they need to stay afloat in the worst recession in recent history for the country. With access to capital cut, and the income from failed home loans strangled through the rise in foreclosures how can the emerald jewel hang in there until the massive, explosive turn around that the government is forecasting here in a few years? The short answer, raise the corporate tax rate that has attracted so many foreign companies to set up shop in the country. Last week the esteemed Sir Michael Smurfit hinted that a temporary hike in corporate interest rate may be right in line as part of a strategy to bring the country up to a level of financial stability. This however was not without its share of doubters who fear that this policy may actually force companies to leave the country once the rate is hiked, thus making the policy counterproductive.

Smurfit however hinted that the proper application of policy would be a temporary hike, possibly for a time as short as four years. So the question now is whether or not a temporary tax hike will be enough (even in the short term) to persuade foreign companies to leave Ireland in search of greener pastures? While companies like Citibank are adding jobs and putting down deeper roots in the country, less established companies may very well decide that the loss of the advantage is not worth their continued operation in the country. It is widely hoped that the export market is going to drive the economic recovery and foreign based firms will be key in driving those export relationships. If this is the important factor then where is the value proposition for the foreign companies that are going to lose their tax advantages? With education on the chopping block there is doubt as to whether or not the country can compete on the basis of the educated workforce, so that will provide very little negotiating power for a country on the brink.

Secondly the natural resources of Ireland are mostly in mining opportunities and farm outputs, and as a result access to materials is not a source of competitive advantage either. So where is the value proposition to foreign firms, where is that reason that says “I should do business in Ireland because…”? Ireland as a whole needs to put themselves in a position of the foreign firm and decide that after the potentially short term interest rate hike how do you get them to entrench their business farther so that coming out the other side the firm is positioned with a sustainable advantage going in the far future. Perhaps that is giving the preferential treatment to shares in the banking system following the end of the nationalization, thus assuring a potential easier time securing capital. It is no secret that Ireland is looking far and wide for partners and buyers in the recently nationalized banks. Much like a relationship Ireland will have to convince its foreign clients that short term bumps are worth the long term relationship.