The Irish Economy
Commentary, information, and intelligent discourse about the Irish economy
His op-ed in today’s Irish Times is available here.
Can someone kindly explain the logic of this to me:
“In particular, there is increasing concern that the withdrawal of capital from central and eastern Europe could trigger major crises in the new member states of the European Union, which in turn could be quickly transmitted to other European economies. Among the western European economies, those that are most vulnerable include Ireland, Greece, Austria, Portugal and Spain.”
I know Austrian banks have lent huge amounts to Eastern Europe but why are we included here?
This article as a whole was comforting. It’s the first time I’ve heard a bigwig commentator mention two points near and dear to my heart:
1) That crowding out is a legitimate risk in the short term (“In turn, the high spread on Irish sovereign debt raises funding costs for the banking system and for corporations, contributing to the economic slowdown and the problems in the banking sector.”)
2) That the capital budget should not be treated as sacrisanct (“it is also time to suspend many of the larger-ticket items in the public capital programme”). Why are underground tunnels through the city centre which connect inefficiently run trains from Galway to ineffectienly run trains to Belfast a more sensible investment in Ireland’s future than special needs teachers in disadvantaged schools?
More generally, I think the logic Peter Sutherland employs for Irish belt tightening (“Since the upward pressure on interest rates means that the currently loose fiscal policy is not helping the recovery in the economy or in the banking sector, a fiscal retrenchment now in fact is the best move open to the Government in restoring health to the economy and banking sector.”) applies equally for other countries, and particularly for Germany. Why borrow by issuing pricey bund bonds, when your economic recovery will depend on exports anyway?
Better to keep your fiscal head low, weather the storm as cheaply as possible, and position your growth industries to penetrate the emerging markets who have best survived the crisis.
Spain has higher unemployment and a smaller deficit as a % of GDP. Far from talking of a ‘levy’ what I don’t understand is how we can keep 370,000+ people on the public payroll?
Collapsing tax collections occur in crises internationally and Ireland is no different so the real quesiton isn’t ‘will we tackle this’ but ‘how deep do we have to cut to get rid of the problem’ which in a nutshell is being exacerbated by high public spending.
A debt/GDP that will more than double from 07′ to 10′ and €55 million a day required to keep the wheels turning, I think the Celtic Tiger is well and truly alive, only this time it has been reincarnated as a spendthrift.
He is saying what many have believed for some time, we need sharp action to get ahead of the curve, if only we had the courage to accept that….
On Q&A last night most of the panel agreed they were prepared to accept higher taxes to help us out of this crisis. They also agreed we need to do something now, not wait endlessly for reports. Peter Sutherland agrees.
An announcement to increase taxation on highish earners now would also have the effect hopefully of diffusing the public sector protests and planned strikes.
The down side is it will further reduce economic growth and dampen consumer spending but I don’t see any alternative. I prefer surgery today rather than a long drawn out illness.
Here’s a link to an interesting article by Jeffrey Sachs on “The Economic Need for Stable Policies”:
Excellent article by Peter Sutherland, I would put more emphasis on public spending cuts than tax rises as to do otherwise ignores the fact that Ireland needs to get competitive again quickly, i.e. we need a quick, across the board devaluation.
Former Taoiseach Garret Fitzgerald has repeatedly documented the excessive increases in public spending that took place since 2000. The unions are of course implicated in this and in the wage increases and inflation that followed, they are at least partially responsible for the crisis. Public spending has been out of control for a while now and must be cut quickly and deeply.
Agreed that Suds seems to have addressed the baseline issues. Remains to be seen if his erstwhile political opponents in the present gov will actually do any of his suggestions.
Cannot resist referring to the irony of the chair of a major oil co; chair of a branch of Goldman Sachs and former boss of WTO lecturing us on how to get out of jail…. Had he nothing to do with us being in jail?
off topic I know but could someone tell the Indo sub-eds that debt != deficit?
Obama vows to halve US debt in four years
Ciaran, I think if you read Garreth Fitzgerald’s articles you’ll find that he thinks spending is about right and the problem is that the general surplus of previous years was eroded by unnecessary tax cuts. In fact he’s often stated that spending at current levels is a minimum required for a modern economy, and may even have stated on occassion that it’s actually too low. You know little things like childcare!
Karl Deeter, just who should have the courage??? Would you live on what many people live on in this country, could you??? Could you live on welfare, if you had kids and an excessive debt burden? Nail your courage to the mast!!! And Spain has property taxes, amongst others. I don’t believe it’s because they’ve slashed public sector jobs to arrive in their current position, which it should be added is worse than ours by a considerable position (if you’re not fixated on the budget deficit that is).
Paul Power, there is no logic. These guys just think a certain way, and will in fact say anything to back up their case. It doesn’t have to either a) make sense, b) be the truth, or c) fit the facts as they change. They argue the same thing in good times and bad.
I know that Fitzgerald supports closing the gap with higher taxes rather than falling spending. I still think it is hard to escape the logic that spending (& tax cuts) created excessive inflation and wage increases. The best way to deal with this is directly, i.e. cut spending. What are we getting for all this high spending anyway, high quality public services? Hmmm Even if you think current levels of public spending are acceptable as Fitzgerald does, you must concede that we need value for money, i.e. reform & lower wages.
I say once off competitive devaluation, get value for money first, cut spending, cut out tax shelters & higher tax relief…and then fill the remaining gap with tax increases. This has the advantage of giving us value for money, getting back competitiveness and ensuring that tax rises are bearable and do not choke off future growth.
As for your claims about welfare, UK rate is £60 p/w in contrast to 200 here, if you don’t think that needs to fall at least in line with falling prices well then….
Peter Sutherland quoted in the Irish Times on April 5th 2008:
“Commentators and economists generally should restrain the tendency to make things appear worse than they are.
“The fact is that the achievements made in the Irish economy are real.
“They are not a bubble and, given proper policies, we can confidently look forward to continuing growth above the EU average for the next five years and beyond.”
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