As the Eurozone debt crisis rumbles on, Spain is now in the eye of the storm, having replaced Italy in the unenviable position as the ‘next Greece’. Indeed, such is the bleakness of the media coverage – both in Europe itself and at a global level – that it could appear that business activity across the continent has simply ground to a halt.

While domestic conditions may be very difficult, when it comes to foreign direct investment (FDI), Europe remains on an upward curve. According to the United Nations Conference on Trade and Development (UNCTAD), FDI inflows into Europe grew by 23% (in value) in 2011.

This is a broadly positive top-line figure but it hides the fact that the experience is far more positive for some than it is for others. For example, of the three countries which received bailouts from the EU – Ireland, Greece and Portugal – data from FDI Intelligence shows that Ireland is the only one to have experienced an increase in FDI since the crisis began in 2008.

With Ireland considered to be the best of the European patients at swallowing its austerity medicine, this statistic reinforces the argument that political stability and fiscal policy certainty are increasingly important concerns for would-be investors, with these factors heavily influencing their investment decisions.

According to a study of global investors, carried out by the Economist Intelligence Unit (EIU), political stability is ‘very significant’ when it comes to FDI decisions, with 87% of those that took part in the study highlighting fiscal certainty as important in this regard.
These concerns are unsurprising. However, in the context of the European project, it is easy to see why certain countries – such as Ireland – are increasingly punching above their weight compared to what are perceived to be their  neighbours.

Certainty and clarity – the facts

So what does certainty mean? Firstly, it refers to political leadership. Investors want to know that a regime change would not lead to a huge shift in how their overseas operations are taxed, or the rules that apply to employment or R&D credits.

In an Irish context, the best example of this is the 12.5% corporation tax rate, which has been successfully defended and supported by successive Irish Governments since its introduction in 1990s.

Secondly, it refers to consistency of treatment. One only needs to look at recent expropriations in Argentina and Bolivia to understand the shockwaves that can be sent by a sudden shift in policy. Again, investors want to know that conditions are stable and that decisions are made consistently and fairly.

Thirdly, and arguably most importantly; certainty relates to familiarity and confidence created by the positive experiences of others. Ireland, for example, is now home to eight of the 10 largest pharmaceutical companies in the world, while the "cluster" of technology firms includes IBM, EMC, Cisco, Oracle, Facebook and Twitter.

It is no surprise, therefore, that this provides a degree of confidence to other investors who are weighing up their options.

Market access is keyThe question of market access is also worth considering. Regardless of its current woes, the European Union remains the largest single market in the world, with no shortage of companies looking to access this.

According to the EIU report, Ireland’s gateway proposition – namely its ability to provide an efficient route to market – continues to be a huge competitive advantage.

Historically, the majority of traffic through this gateway has been of US origin, with US companies holding a collective stock of FDI in Ireland of almost $200 billion, more than in all of BRIC countries combined. However, Asian companies – particularly from China – are also looking to access the EU via Ireland.

Earlier this month, plans were announced for a 1.1 million sq. ft. Euro-Chinese Trading Hub in Ireland’s midlands, with this €175 million development planned to act as a base for Chinese companies to trade with European customers.

Again, it is likely that a positive experience for the first companies who set up in this physical cluster, will give confidence to others to follow in the future. In summary, with the problems in some European countries worsening by the day, it would be naïve to suggest that the newspaper headlines will become more positive overnight.

However, for Ireland at least, the world has certainly not stopped turning.

Stanley Watson is head of the London offices of  Dublin law firm Matheson Ormsby Prentice. Robert O’Shea is head of the firm’s international business group. www.mop.ie/fdi