The Irish Tiger and the German Frog: A Tale of Size and Growth in the Euro Area

In this paper, we try to relate country size to economic performance in the Euro area, focusing on the second smallest Euro area country, Ireland, and the region’s largest economy, Germany, from 1995 to 2005. In the institutional context of the EMU, we show that Ireland smallness was a major factor in its spectacular success, while the growth strategy of Germany was not in line with its size and thus produced poor overall results. We argue that while Ireland needs to rethink its growth strategy with the arrival of the Eastern small states in the EU and the Euro area, Germany’s economic extraversion – choosing external competitiveness over domestic expansion and resorting to social and tax competition – could be re-oriented towards intensive domestic growth with benefits, not only for the country, but also for the Euro area as a whole.