Fiscal Adjustment: Spanish Style

The FT outlines some of the elements of the new fiscal austerity budget in Spain – especially noteworthy is the hike in VAT rates. Although the Spanish fiscal deficit is not as large as ours, the unwinding of unsustainable boom-period tax cuts and spending increases is qualitatively similar.

2 replies on “Fiscal Adjustment: Spanish Style”

Interesting article. It’s really worrying that there is so little public discussion going on here about the scale of the gap we have to bridge and how we are going to make a start on it, as we have to, in the next budget. Perhaps the pre-occupation with the details of Nama have distracted from it, as has the Lisbon 2 campaign, and minds will become more sharply focussed once these two hurdles have been successfully negotiated in a political sense. Thus far, public commentary has been concentrated on special pleadings by various groups within society from the artists alliance to the newly formed frontline workers’ group to trade unions actually pre-emptively balloting their membership on strike action without any industrial dispute being declared.

I am aware that in political circles it is believed that the current government will not be able to agree a budget. So perhaps, from their perspective what’s important right now is to set out your political stall for the general election to come. As Labour leader, Eamon Gilmore, did on Morning Ireland yesterday, when he stated his party will oppose any public service pay cuts or any cuts in benefits of any kind or any cuts in jobs or services as well. Or as various Ministers in certain Departtments of State have done also, ruling out any of the cuts proposed in the McCarthy report in their areas of responsibility; or any prospect of public sector reform contingent on their implementation.

All of which sparks another thought, which is that maybe our political class simply can’t get their heads around the magnitude of the task that faces them and are simply reverting to their best known form of behaviour when required to contemplate it?

So my question is, assuming for the sake of argument that Lisbon 2 is passed and Nama in some shape or form goes through, what are the likely consequences for the Irish economy going into 2010 if the Budget is botched?


Observation so far suggests that everything (from a political perspective) has been about buying time. I can only guess that time will run out in 2010 (to the point where it becomes too late to be able to do anything about it) and possibly see Ireland heading for a major rupture?

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