When Irish Eyes Are Crying

Once touted as the economic model for the new European Union, the Irish economy has recently been dragged down by the very same economic body that was supposed to foster its growth.

See, over the past quarter century or so, Ireland has reinvigorated its economy by slashing corporate taxes, improving education, privatizing state-run businesses, and aggressively marketing its new open-door policy to multinational companies. And it worked. For example, from 1996 to 2006, the Irish GNP averaged 6.5% growth and unemployment once sat near 4%.

Those times have changed, however. Ireland's 2008 GNP is projected to be a mere 1.6%, multinational companies like Motorola (NYSE: MOT) and Amgen (Nasdaq: AMGN) have either shut down plants or abandoned planned Irish operations, and the country's unemployment rate is expected to be more than 5% this year.

What a hangover!
There are a few things ailing the Irish economy. For one, during its period of rapid expansion, Ireland experienced a housing bubble not unlike our own, which has also subsequently burst. At one point, construction accounted for a tenth of Ireland's national income and 13% of jobs. As a result, Irish consumers are facing increased spending pressure as both inflation and unemployment tick upward.

Yet where a weak U.S. dollar is helping our exporters and keeping our economy afloat while our housing market quivers, a strong euro currency is conversely hurting the Irish in their time of need. Unlike in the U.S., where the dollar's strength can be affected by our own Federal Reserve's interest rate decisions, the Irish are at the mercy of the European Central Bank, which is tremendously influenced by the more conservative and inflation-phobic German bloc of Austria, Germany, Luxembourg, and the Netherlands.

Trying to get the German bloc to lower ECB interest rates, especially in this environment of high global commodity prices, is like trying to get Yankee fans to concede that Manny Ramirez is the best power hitter in baseball. It just ain't gonna happen.

But hope springs eternal
Even though these recent developments have sent the Irish ISEQ 20 index down nearly 30% off its 52-week high, the 100,000-plus investors participating in Motley Fool CAPS think it's time to follow the rainbow and take a fresh look at some select Irish stocks.

Consider these top-rated companies:

One of the most beaten-up Irish stocks has been Allied Irish Banks, which has seen its price slashed by a third since last May, largely as a result of the housing bust. In February, my Foolish colleague Nathan Parmelee argued that this is simply a cyclical process and that Allied Irish Banks could end up being the best international stock for 2008. Other CAPS players, like All-Star tuffsledding, agreed with Nathan's arguments:

Well managed bank unjustly punished as a result of the sub-prime fiasco. Their balance sheet is in far better shape, they have shareholder-friendly, conservative management. This is a gift from a panicked market.

So far, they've both been right, as Allied Irish Banks' shares have ticked up 6% since early February.

What do you think about the Irish economy in general or any specific Irish stock? You can make your voice heard by joining the Motley Fool CAPS community today. It's 100% free.