I did a short pre-budget presentation today at UCD. Here are the slides. One point I emphasised is whether the level of front-loading of adjustment in the four-year plan agreed with the EU and IMF makes sense.
Up until the past few weeks, it was reasonable to argue that a significant front-loading was necessary (if not sufficient) to regain access to the sovereign bond market. However, now that our banking problems and the ECB have caught up with us and access to the sovereign bond market is not an issue for the next few years, I’m struggling to understand the logic for the extent of front-loading in the current plan (€6 bilion in adjustments in 2011, €3.6 billion in 2012, €3.1 billion in 2013 and 2014).
The economy is still in poor shape, so I’m not sure what the current argument is for further undermining it with such a front-loaded adjustment. As I speculated in the talk, perhaps the EU wanted to lock in as much adjustment as possible with the current government because comittments beyond the 2011 budget were most likely going to be open to negotiations with the next government.