The EU Expenditure Benchmark: Operational Issues for Ireland in 2016 Post author By Seamus Coffey Post date April 1, 2015 A new analytical note from the Fiscal Council. Here. Categories In Uncategorized 51 Comments on The EU Expenditure Benchmark: Operational Issues for Ireland in 2016 ← IEA 2015 Conference → New Working Paper on the Restructuring and Recovery of the Irish Financial Sector 51 replies on “The EU Expenditure Benchmark: Operational Issues for Ireland in 2016” Time for a little transparency at Budget time and ahead of the 2016 election; publish the expenditure benchmark , the allowable adjustments and therefore the actual total spending figure as any additional expenditure will have to be funded via additional taxation. On the specifics for 2016, IFAC calculates that nominal(benchmark) expenditure could rise by 0.3% instead of falling by 0.1% if the latest vintage of potential growth estimates are employed, so still not quite the pre-election Budget some appear to expect. Link not working! This does. http://www.fiscalcouncil.ie/wp-content/uploads/2012/01/ExpenditureBenchmarkNote_310315_Final_1.5.pdf The govt has its own model which is predicated on higher potential growth estimates with a backward looking true up for upward revisions to GDP post 2007. It is in beta testing at the moment but the results show that expenditure could rise by 1.27% rather than falling by 0.1% using the latest vintage. That should allow for a sufficient adjustment in the Budget without threatening our progress towards fiscal nirvana. @IFAC Yes, Angela’s Corset is ‘nonsense’. @all On Podemos – v. good insights ‘First we take Manorhamilton – then we take Berlin!’ http://www.theguardian.com/world/2015/mar/31/podemos-revolution-radical-academics-changed-european-politics @The great unwashed mass of non-radical Irish academics ….. Apologies if any offence caused … you poor dears! This commentary by John Fitzgerald is essential reading (and has no mathematical formulae of very dubious value). http://www.irishtimes.com/business/economy/john-fitzgerald-time-to-build-on-our-economic-turnaround-1.2158846 Despite the technocratic nature of the rules developed by the EU, the strengthened role of the Central Bank, and the coming into existence of IFAC, represent a sea change from the “when I have it, I spend it” era. Lest we forget! http://www.rte.ie/news/2001/0208/12338-budget/ Not overlooking why the Commission lost the battle; with all concerned. http://oireachtasdebates.oireachtas.ie/Debates%20Authoring/DebatesWebPack.nsf/committeetakes/EUJ2003121100004?opendocument And why history is very likely to repeat itself. http://www.irishtimes.com/business/economy/coalition-can-depart-from-fiscal-rules-but-scope-for-tax-cuts-is-limited-1.2160601 “Third, the Government should continue its commitment to domestic multi-year expenditure ceilings.” Will it? The relevant legislation is about as binding as a piece of frayed elastic. http://www.fiscalcouncil.ie/wp-content/uploads/2011/07/en.act_.2013.0029.pdf I see the IFC chart predicts a sharp slowdown in GDP/GNP growth in Ireland in 2015 as compared with 2014. The Central Bank report out today also predicts a sharp slowdown. In the real world, however, all the indications are that growth in Ireland has accelerated in early 2015 and growth in 2015 will be higher than in 2014. I increasingly despair of the abilities of economic forecasters in Ireland. Difficult though it is to believe now, this time last year even the most optimistic forecasters in Ireland, including the Government itself, were forecasting 1.5-2.0% growth in 2014. At that time there wasn’t the slightest hint in the forecasts of the sharp acceleration in growth that we have since seen. The only person forecasting growth of 5% plus this time last year was my good self. This isn’t idle boasting. Its there in the record in posts on this site from around a year ago. We are getting a repeat in 2015. For example, the Central Bank report today forecast that Ireland’s unemployment rate will fall to 9.8% by the end of 2015. Poppycock! It was already down to 10.0% in March (figure out today). It will probably hit 9.8% when April’s figures are published. At the present rate of fall (0.5% every 3 months), it will be down to 8.5% by the end of 2015. I wonder what sort of likelihood the DoF places on Brexit. Re fiscal nirvana “Here we are now, entertain us” and economic growth in the OECD “I found it hard; it’s hard to find Oh well, whatever, never mind” and JTO “a denial, a denial, a denial” https://www.youtube.com/watch?v=hTWKbfoikeg With regard to John Fitzgerald’s article, I agree with most but would argue that his final point – that we should give up on grievances – is misguided. Most of the bad Irish behaviour that led to the crisis, and that compounded the crisis once it occurred, has been largely consequence-free for its perpetrators. This, more than anything else, creates an environment of moral hazard and forgetfulness that almost guarantees that history will repeat itself. “I increasingly despair of the abilities of economic forecasters in Ireland.” No worries John – its basically astrology disguised as cosmology but is actually codology: planetary conjunctions, elliptical orbits, eclipses, solar flares, comets and such like. Ptolemy or Paracelsus or whatever you’re having yourself! I’ll stick with Petty. Sharp with the stats, he was. Seriously. Global trade and economic activity are not in good shape. The US appears to be finely balanced between another downturn and bouncing along the bottom. Ireland may indeed be ‘looking up’ – but 5% growth cannot possibly be correct. What’s the proportion of our working-age population that is in full-time employments? And what are the median wages or salaries in the various sectors? Are there significant differences in the employment sectors? Unemployment stats are makey-uppy stuff. When it is confirmed that median wages and salaries have increased by 5% …… fyi Poor and under pressure: the social impact of Europe’s fiscal consolidation by Zsolt Darvas and Olga Tschekassin on 1st April 2015 Europe faces major challenges related to poverty, unemployment and polarisation between the south and the north, which impact adversely the current living conditions of many citizens, and also negatively impact medium- and long-term economic growth. Fiscal consolidation exaggerated social hardship. In vulnerable countries there was no alternative to fiscal consolidation, but in most EU countries and at aggregate EU level, consolidation was premature when the cyclical position of the economy was deteriorating. Spending on social protection was shielded relative to other spending categories, but public bank rescue costs were high. While the changes in the tax mix favoured job creation, the overall tax burden become more regressive. There is an increasing generational divide between the elderly and the young in terms of social indicators. Social spending on elderly people was favoured relative to spending on families, children and education. There is now a serious danger that a lost generation might develop in several member states. Forceful policies should include bold structural reforms, better use of the European economic governance framework, more demand promotion, and a revision of national tax/benefit systems for fair burden sharing between the wealthy and poor. http://www.bruegel.org/publications/publication-detail/publication/877-poor-and-under-pressure-the-social-impact-of-europes-fiscal-consolidation/ [h/t nakedcapitalism.com One key step in architecting the fragile property transaction dependence of the Irish tax system dates to the budget of 1997 … “Mr. Quinn: The Financial Resolution, which will be moved later, sets out the full details of the application of the new 9 per cent rate of stamp duty and the definition of residential property for the purposes of this new rate. The Financial Resolution provides for a number of intermediate rates to increase the duty from 6 per cent to 9 per cent. These are 7 per cent for relevant property valued between £150,000 and £160,000 and 8 per cent for property valued between £160,000 and £170,000, with the 9 per cent rate applying thereafter. This stamp duty increase will raise £13.5 million in a full year.” @ BWS John Kay nailed it a while ago http://www.ft.com/intl/cms/s/0/71832f72-2e45-11e0-8733-00144feabdc0.html “People sell securities whose properties they only dimly appreciate to people who do not understand them at all. Consultants describe the business world in language – and, of course, PowerPoint presentations – whose elaboration disguises the banality of the thought. Real understanding lies in finding simplifications that bring order to disparate facts. Such was the nature of Rutherford’s discovery and of his understanding; and why he felt able to reveal his findings to the Manchester Library and Philosophical Society. But Rutherford’s task was easier in one important sense: the world he laboured to make sense of was unchanging and unaffected by our understanding, if not necessarily our observation, of it. The same is not true of business and finance.” @ JTO The issue is getting control of the national budget in terms of its size and productive use, economic growth being both an outcome and a parameter. The more expenditure is tailored to increasing the wealth generating capacity of the economy, the less restrictive growth – or the lack of it – will be as a parameter. As far as the debate in Ireland is concerned, this has hardly even begun to be recognised, not to mind discussed. I am aware of only one country that has brought about the necessary reforms as the result of the loss of control of the national budget; Sweden. http://www.finanspolitiskaradet.com/download/18.11165b2c13cf48416debd6d/1420730553813/Underlagsrapport+2013-1+Holmquist+%26+Molander.pdf Maybe Germany is also en route to doing so. As far as Ireland is concerned, the only stimuli actually prodding us in the right direction are largely external i.e. coming from the EU. The measures adopted nationally are not effective, except in the case of the Central Bank. The role being played by IFAC is, nevertheless, more than worthwhile in terms of helping to create the necessary political consensus for the radical reforms required; a sine qua non as the paper linked too above reveals. Half a loaf is better than no bread! @DOCM That you put Sweden top of your list of admired countries does not surprise me. Its virtually unknown in Ireland for any male commenter to utter anything other than fulsome praise for Sweden. I think Freud would say it has something to do with images of attractive blondes. Sweden deserves lots of the praise you give it for its budgetary reforms. I don’t quarrel with that. However, it also has lots of policy failures – in particular: (a) It has allowed its cost base to go far too high. in the mid 2000s its comparative price level was the same as Ireland’s. By 2014, its comparative price level was 25 per cent higher than Ireland’s. Ireland is now super-competitive. Sweden isn’t. (b) It has destroyed its education system with loopy-liberal ideology and political correctness. Ireland came near the top in Europe in the 2012 PISA tests – Sweden came almost at the bottom. One of the biggest growth industries in Sweden currently is the manufacture of gender-neutral pronouns for use in school classrooms. (c) It is still a high-tax high-spend country, although not as bad as it used to be. Mix all these factors and combine with the oil price collapse, which will hit Sweden because of its links to the Norwegian and Russian oil economies, and there can be little doubt that the Irish economy will grow far more rapidly than the Swedish economy for the rest of this decade, probably 2 to 3 times as fast. That’s the bottom line for how good the decision-making process is in a country. Brilliant victory for Nicola Sturgeon in the ITV election debate tonight. Wiped the floor with the London establishment politicians. Roll on Saor Alba. @ JTO Stick to the point! Incidentally, I agree largely with the points that you make. Swedish growth rates have been anaemic for decades. There are many, however, that would settle for its cradle to the grave social protection systems. AEP in the Telegraph on Greece! http://www.telegraph.co.uk/finance/economics/11513341/Greece-draws-up-drachma-plans-prepares-to-miss-IMF-payment.html There is no sign that the other countries are about to blink and a failure to make the IMF payment would pit Syriza (or, at least, the wild men in it) against a wider international constituency. It seems that it may come down to the introduction of capital controls, the big question being the manner in which it will happen; in a controlled fashion with Greece remaining in the euro or as part of a chaotic exit of Greece from it. When the SNP gets an independent Scotland, will it be obvious why Edinburgh is called the Athens of the North. The SNP model only works with $200 oil and lashings of OPM. They are just Rangers supporting Shinners. Harald Schumann (“Power without control”) complete interviews: Talking to Paul Krugman (July 2014) https://www.youtube.com/watch?v=x5dk9Tlsa_4 Talking to Philippe Legrain (former adviser to Manuel Barroso) (July 2014) https://www.youtube.com/watch?v=kbZxS6uHFXc Talking to Yanis Varoufakis (Summer 2014) Comparatively speaking, JTO is a master of sticking to the point!! Pot calling teapot … A very good piece in The Economist: http://www.economist.com/blogs/freeexchange/2015/04/puzzles on the ‘bigger picture’ as the Government contemplates bribing voters with their own money to win the next election. The need to secure some fiscal resilience never had a chance when pitched against the overwhelming desire to win the next election. “Their own money”: sounds like an argument for doing away with government altogether. Why don’t you make it? One big problem in Ireland in terms of the fiscal stance is that there is often a sizeable difference between the ex ante and ex post position. For example, the 2014 Budget was predicated on 2% GDP growth (around the consensus at the time) but growth is now put at 4.8%.The reverse happened in 2001; the Budget projected a General Government surplus of 4.4% of GDP ( the EC censored Ireland at the time, arguing for a larger surplus) but in the event the economy slowed dramatically and the surplus emerged at under 1% of GDP. Forecast errors are not an exclusively Irish problem (check out the Office of Budget Responsibility in the UK) but Ireland is unusual in two respects- exports are very large relative to GDP (119% in q4 last year) and there is no monthly data that feed directly in to the GDP release (unlike the US and UK for example). Last year merchandise exports, as reported in the monthly trade data, amounted to €89bn while the national accounts figure was €107bn. Service exports amounted to another €100bn and there is no monthly data on services. The monthly PMI’s may provide a useful guide to activity in Ireland but not for reported GDP. @ Tull Why do you think oil is down? If it’s deflation it’s linked to why the SNP are doing so well- many are not happy with the economic policies of the Tories. I think that’s fairly inevitable and why the Tories are not going to get a majority. Political chaos is the next stage of the crisis, I bet. Oil could always go back up and generate inflation- would not be good for bonds either. I wonder to what extent the price has been manipulated and what the potential for another bubble is. Of the three stalwarts mentioned by jmg, one – the most important – has now seen the light, it seems. http://www.nytimes.com/2015/04/07/business/international/greece-must-walk-the-talk-and-soon.html?_r=0 The issue is directly relevant to this thread because it happens to be the same one i.e. the fear politicians have of telling it as it is to their electorate. http://www.smh.com.au/business/alexis-tsipras-finds-harsh-reality-alters-greece-and-syrizas-reform-promises-20150405-1metd8.html @ PH A very good commentary on secular stagnation! No simple choices but rather an evident – and long-standing – dilemma. What I find curious is the failure in the Economist blog article to address the issue of the relative productivity of economies. Ireland lost its way on this score and, one the evidence of the growing “we want our money back” cacophony, may be about to lose it again. Cliff Taylor on the topic; http://www.irishtimes.com/opinion/cliff-taylor-why-the-government-must-reject-unions-pay-restoration-agenda-1.2164295 Curiously, perhaps for reasons of space, he does not delve into the crucial issue i.e. that of affordability which is directly related not so much to the totality of new spending, or tax cuts, but to their impact on productivity. Splurging on a vote-buying exercise of public sector employees is not the most obvious route to success. The Greek experience in the coming weeks will be instructive, in what way remains to be seen. Continuing with, for example, 20 unionised members, or whatever the current number is, to run a crane in the port of Piraeus in public ownership as against the greatly reduced number actually required being demonstrated by the Chinese run private bit, is unlikely, for example to escape notice. Paying a level of pensions which the economy cannot sustain would be another. And so on! Another comment from the Telegraph (well-known for its affection for Europe and especially the euro!) that is more on the ball than that emanating from AEP. http://www.telegraph.co.uk/finance/11518537/Greece-would-be-taking-a-stupendous-gamble-by-missing-its-IMF-payments.html @DOCM, Thank you. For me, the key message in The Economist’s piece is close to the end: “The ageing societies of the rich world want rapid income growth and low inflation and a decent return on safe investments and limited redistribution and low levels of immigration. Well you can’t have all of that. And what they have decided is that what they’re prepared to sacrifice is the rapid income growth.” I’ve linked previously to this paper by Karl Whelan, previously of this parish, and Kieran McQuinn of the ESRI: http://www.karlwhelan.com/Papers/McQuinnWhelanMarch2015.pdf Ireland’s demographics are healthier than many of the bigger EU member-states and, as a small state, it can still do quite a bit of economic free-riding. So GDP growth – and to a lesser extent GNP growth – will look more impressive than that for other EU member-states. But the focus of the powerful and influential interest groups remains on the sustained capture of economic rents. And that’s true not only in Ireland but in all of the “ageing societies of the rich world”. Even though its demographics are quite a bit better than its continental peers, the upcoming election in the UK will demonstrate the disposition of the political forces on income growth, inflation, investment returns and immigration. The Tories believe they can muster a majority from the property-owning class and retirees seeking to protect or increase the economic rents they have either captured or hope to capture. Indeed it would be irrational for any home or property owner not to vote Tory. It will take the election after the upcoming one (or possibly another) to generate the political and demographic shifts that will overthrow this consensus. A similar consensus, with an even more rapacious focus on the capture of economic rents, exists in Ireland. Protecting the capture of these economic rents for the favoured special interest groups with a touch of the fiscal gymnastics that this note from IFAC suggests would be permissible should be enough to get FG and Labour close to, or over the line – possibly with some help from whatever handful of TDs Deputies Ross and Creighton manage to return. It also helps to explain the apparent softness of FF’s vote. SF and the various left-wing factions may have to wait. And the longer they’re forced to wait the more the ideological clap-trap they spout will be revealed – together with the fact that they would facilitate even more voracious rent capturing for their constituents than the mainstream parties. Greece is probably the extreme case that highlights the problem. Greece has simply far too many rent capturers on both the right and the left and not enough ‘prey’ – aka ordinary citizens – on which they feed. If a critical mass of citizens does not exist to exercise some restraint on the rent-capturers then the path to being a failed state can be short. Ireland lost whatever sovereignty it had in 2010 and has subsequently regained much of it. Some, but not all, of the rent-capturers who contributed to that loss have been chastened. But far too many remain unrestrained. @ PH “The Tories believe they can muster a majority from the property-owning class and retirees seeking to protect or increase the economic rents they have either captured or hope to capture. Indeed it would be irrational for any home or property owner not to vote Tory.” The economic interests of middle England are not the same as those of the plutocrats. http://www.theguardian.com/commentisfree/2015/apr/08/d-iliband-non-doms-tax-margaret-thatcher-council-houses-labour “Ever since Thatcher took over, the share of earnings of the bottom 80% has fallen while the top 1% own 55% of everything.” Interest rates are on the floor because there is more debt than there are opportunities to invest. And the Tories need 40% – they have to lure a good clatter of losers to add to the rentiers (and those who think they are winners) and they have nothing to offer the losers. “it would be irrational for any home or property owner not to vote Tory” – not so if the Tories are just building a bigger bubble. The election looks like a poisoned chalice. Osborne, if he wins, could end up with a reputation worse than that of Norman Lamont. http://blogs.ft.com/gavyndavies/2014/12/01/uk-fiscal-austerity-a-game-of-two-halves/ “But, from here, it would be rare for the private sector to shift substantially into financial deficit by increasing its expenditure further relative to income. Growth in private activity will therefore need to come from a rise in income, especially wages, not from falling savings ratios. That will be a more difficult process, especially if fiscal policy is being tightened at the same time. The second phase of the fiscal correction may therefore be even harder to attain than the first. A simultaneous contraction in both fiscal and monetary policy looks problematic: something will surely have to give.” @Paul Hunt Yes Paul – all those bleed1n neomarxists in the Progressive Democrats and those lefty socialists who waded in for Fianna Fail behind the arch-Socialist B. Ahern wrecked the state. All their ‘ideological claptrap’ on ‘light touch regulation’ [brainchild of the arch neoMarxist McDowell and his sidekick Mary Harney] and the classic marxism of Mcreevy on ‘if I have it I spend it’ not to mention the wonderful growth of the financial system and the SOCIALIZATION of its bleed1n debts on the backs of the humble ungrateful citizenry. You have been assimillated … The Oligarchs are smiling …. all the way to the ECB. http://www.nakedcapitalism.com/2015/04/rob-parenteau-draghis-doom-loops-just-euthanasia-rentiers.html @Greek Citizenry In solidarity. @ PH Rents can, indeed, be captured in various ways and right across the social spectrum. The key question is the capacity of the economy as a whole to support that capture. This was brought home to me recently by some persons close to me who said that the economic situation in which they found themselves was such that they would vote for whoever promised to improve it irrespective of the societal rights or wrongs of so doing. That is the challenge facing Irish politicians. The job of those expert enough to do so is to temper this sentiment by pulling together the facts, however uncomfortable! The Greeks are, as you say, showing the the downside of failing to do so. I had already seen the KW paper and, while I cannot claim any mastery of the technical aspects, I agree with the general thesis. But it is a question of horses for courses. Ireland’s situation is unique due to the dominance of the US multi-national sector, a fact our creditors are well aware of, even if the body politic in Ireland insists on ignoring it. The US cavalry may have arrived just in the nick of time. I am very hopeful. The sanctimonious outpourings of the teaching profession about the plight of a third of their colleagues, for example, because they collectively could not agree to cut their collective cloth according to the country’s collective budgetary measure. to allow retention of appropriate staffing levels and standard working conditions, can no longer persuade. The same holds true right across the public sector; and those involved know it! The NYT on the use of ELA, as highlighted by the case of Greece. http://www.nytimes.com/2015/04/08/business/dealbook/as-greece-battles-a-debt-crisis-its-banks-issue-more-short-term-debt.html?_r=0 @DOCM ‘The US cavalry may have arrived just in the nick of time.’ Yes DOCem! And what a wonderful record such a ‘cavalry’ has in recent times …. wonderful …. May I introduce you, geopolitically and economically challenged and all as you are, to Michael Brenner, a Professor of International Affairs at the University of Pittsburgh. Some realism … http://www.counterpunch.org/2015/04/07/americas-safari-to-nowhere/ p.s. Blind Biddy says Hi! @DOCM, The capacity of the economy to support the capture of rents is quite remarkable. And it’s not just the ability of the MNC enclave to put a rosy gloss on the headline macro figures and to underpin the capacity of the economy to support this rent capture; the indigenous exposed (or tradable) sectors have also demonstrated a remarkable resilience. It’s this economic performance and the wonderfully intricate manner in which the centralised institutional system of patronage via public bodies and quangos and the tax and welfare system are intertwined with the generation, capture and distribution of economic rents that, in contrast to your hopefulness, make me very pessimistic that any systematic effort will be made to restrain the rent capturers. (A simple example of this is the additional subsidisation of welfare recipients from general taxation to ameliorate the regressive price impact of the aggressive rent capture by the state-owned electricity and gas networks that receives full policy and regulatory approval.) The fact that this multi-layered, parasitical ecosystem was able to survive the blow-out after 2008 almost intact – only one of two sectors took some hits – suggests it is more deeply embedded than ever and its seriously damaging impacts even less amenable to any remedy. Any attempt to remedy the detrimental impact of this parasitical ecosystem would have to be progressed on a broad front that would tackle the sheltered private, semi-state and public sectors. Any effort that focused on a specific sector would provoke ferocious opposition from those affected (energetically supported by other special interest groups fearing they might be targeted next) and the usual lukewarm support (or total absence of support) from those who would benefit. For the foreseeable future there is no prospect that a political faction will emerge that will be able to secure sufficient public support (and be willing and able to expend the necessary political capital) to tackle this parasitical ecosystem in a comprehensive and systematic manner. The only hope is that external factors and technological changes will drive the denizens of this ecosystem to practise economic cannibalism. Rent seeking is very like debt extraction – it can continue as long as the system functions, as long as the economy is growing. After the last crash it was decided to reanimate the system to work as before, extend and pretend, flood the system with liquidity. It looks like the real thing. it tastes like the real thing. https://www.youtube.com/watch?v=NUJP0BwWB5Q But growth is elusive. http://www.ft.com/intl/cms/s/0/76e4a266-97ff-11e4-b4be-00144feabdc0.html “Given his limited options, Mr Draghi is right to push ahead with QE. The balance of risks strongly argues for trying tool after tool until finding one that works. But it should not necessarily be regarded as the ECB’s fault if it fails to jump-start the economy.” The US isn’t a whole lot better either. Debt holders will only give up hope of getting their money back when all possibilities have been extinguished. See Detroit for details. Rent seekers are pretty similar. @Paul Hunt Spot on. One of the best signs that the vultures are back to their old antics is the appearance of letters in the Irish Times signed by a large group of insiders on the make. The scientists were at it a couple of weeks ago. The authors of these letters change but the message is always the same – my pocket deserves your money. Following DOCM off topic, I find quite interesting the notion that perhaps part of the purpose of the Greek government is to maximise what Greek depositors can rescue at the eventual expense of the Eurosystem before allowing a crunch to come that may send Greek banking belly-up. The longer they drag things out, the more their depositors can rescue, and the less damaging the bad-case outcome for Greece. Just back from the auld sod. Dublin is buzzing but the béal bocht remains in the real capital—even though there are some stirrings such as €500 million worth of “strategic investment projects in the city centre.” Further afield, emerging markets are estimated to have grown in Q1 2015 at the slowest pace since the global plunge of Q1 2009. Global growth is at a 30-year average according to Christine Lagarde and the Economist says this week: “The euro area has actually been growing for two years since an extended double-dip recession ended in early 2013. Yet the expansion has been so desultory that it barely deserved the name. The excitement generated by growth of just 0.3%, an annualised rate of little more than 1%, in the fourth quarter of 2014 tells its own story of shrunken expectations. So feeble has the recovery been that euro-zone GDP in late 2014 was still 2% below its previous pre-crisis peak in early 2008. By contrast, America’s output is higher by almost 9%.” It’s striking how little the Government has to say beyond the upcoming general election. A 5-year plan is promised to coincide with the new Spring Economic Statement that is due to be delivered by the month end. This may seem promising but in Dec 2013 to coincide with the end of the bailout a six-year medium-term strategy was published. It was a promotional brochure. Last month in response to a letter from over 800+ scientists seeking public funding the Irish Times endorsed the demand saying Ireland should aspire to be a “world leader” in science. Basically to match the CAP subsidies that results in Irish agricultural land being among the most expensive in the world, Joe Taxpayer should fund a better-heeled group as business has a very poor record of funding Irish academic research. About 40 US companies account for two-thirds of Irish headline exports and recent government data show that despite the spending of over €20 billion on public science policy in a decade, there has been no material change in the number of companies engaged in significant research or overall patent filings since 2004. The UK’s biggest listed high tech firm has less than 3,000 global employees. Israel has a thriving high tech sector but it has limited economic impact. The cart of course is being put before the horse. A better performing indigenous international trading sector has to come first. @ JohnTheOptimist The negatives on Sweden seem like whataboutery or pub-stool economics. A jump of 20% in Irish industrial production in a month appears to make us “super-competitive” compared with Sweden—imagine that an additional 20% of widgets can be produced in a month without adding any infrastructure or people?? The OECD recently said “Sweden is on the innovation frontier” and it is not realistic to compare it with Ireland. One has its own companies that supply to markets directly and is thus also directly impacted by declines in imports elsewhere; the other mainly supplies into global chains without having any local sales or marketing personnel. Sweden has net debt of 30% of GDP and has problems and challenges like every economy. However, implying that it is incapable of addressing them is a little foolish. Apart from the UK and transiting through airports, I have been to Sweden more than any other European country. Is the number of posts to this site an indicator of growth in the Irish economy? The relationship is an inverse one, of course. In the past 10 days, despite an avalanche of economic news and the opening of the election campaign in the UK, there have been around 10 posts in total over all threads. I conclude from this that growth in the Irish economy has sharply accelerated since the start of the year. This is confirmed by yesterdays’s industrial production figures and figures for new car sales. As Bertie would say, the latest boom is getting boomier. Ireland had a 24-year boom from 1958 until 1982, and a 21-year boom from 2006 until 2007. The latest (3rd) boom began tentatively in 2012 and 2013 (using GNP as the yardstick), accelerated sharply in 2014, and has accelerated further in 2015. The previous two booms both lasted over 20 years. I do not know if this boom will last as long, but the omens look good. Certainly, there appears to be nothing on the horizon that would indicate any likelihood of it ending before this decade is out (although I’m always the first to say that the unexpected sometimes happens and one should never take anything for granted). However, given the strength of the current economic indicators in Ireland, it will take some wholly unexpected malevolent external event (like a war) to bring the current boom to a premature end before this decade is out. But, where will it all lead? The obvious way to predict is to take the most recent GDP/GNP per capita figures and apply current and projected future growth rates. These are the latest figures (from Eurostat) for GDP per capita (PPS-adjusted) in EU28 countries. As is commonly claimed, GDP flatters Ireland. So, I have calculated Ireland’s GNI per capita on the same basis and added it to the table. All figures care given as indices to base EU28 = 100.0. Given the strength of Ireland’s growth in 2014 and 2015, it is important to note that these figures are for 2013 (the latest available from Eurostat). 2013 GDP per capita (PPS) – GNI per capita (PPS) also given for Ireland:  Luxembourg 257.7  Netherlands 130.7 [ ] Ireland (GDP) 129.3  Austria 127.6  Sweden 126.4  Denmark 123.9  Germany 123.1  Belgium 117.7  Finland 112.9  Ireland (GNI) 110.0  U. Kingdom 108.3  France 106.6  Italy 99.3  Spain 93.7  Cyprus 88.3  Malta 86.0  Czech Republic 82.1  Slovenia 81.7  Portugal 78.7  Slovakia 75.0  Estonia 73.1  Lithuania 72.8  Greece 72.7  Poland 67.9  Hungary 66.1  Latvia 63.7  Croatia 60.5  Romania 54.3  Bulgaria 44.5 [ ] EU15 109.0 [ ] EU28 100.0 sourceL Eurostat From all this I confidently predict the following (using GNI as the measure of Ireland’s wealth, GDP for the others): (1) Ireland was 9th wealthiest country per capita in the EU28 in 2013. But, based on 2014 and 2015 growth rates, it almost certainly overtook Finland in 2014 and Belgium in 2015. So, Ireland is almost certainly 7th wealthiest in 2015. (2) Based on projected (by Euro Commission) growth rates post-2015, Ireland will overtake Denmark in 2016, will overtake Germany and Sweden in 2017, will overtake Austria in 2018, and will overtake Netherlands in either 2018 (65% chance) or 2019 (35% chance). No matter which way I look at it, I can see little possibility of Ireland not being 2nd wealthiest in the EU28 (after Luxembourg) by the end of this decade (but more likely by 2018). (3) By 2018, Ireland will by around 15% wealthier than the United Kingdom, around 25% wealthier than France and Finland, and around 40% wealthier than Italy.. Note that John Fitzgerald wrote very similar in the Irish Times on Monday (although with not as much detail). So, its a very realistic scenario. A likely political spin-off from this will be the dissolution of the U. Kingdom, an independent Scotland, a semi-independent Wales, and a United Ireland. This despite the fact that the U. Kingdom economy will do better than most continental European economies during this decade. However, it won’t do as well as the Irish economy, which is the key point as far as the political future of the U. Kingdom is concerned. Given the concentration of U. Kingdom growth in south-east England, I would expect Ireland to be about 30% weather than Scotland, 40% wealthier than Wales, and 50% wealthier than N. Ireland by the end of this decade. If that happens, it is absurd to think that the U. Kingdom will continue to exist (given that its sole raison d’être in modern times has been the media-fostered belief that leaving the U. Kingdom means economic ruin). Oops – in 2nd paragraph, I should have said “from 1986 until 2007. @ MH I also happen to know Sweden rather well and would agree that there is no real comparison between the Irish and Swedish economies. JTO can quote statistical series to his heart’s content but he misses the central point; Sweden is at the forefront of many areas of economic activity and social organisation. Ireland is a follower; and a borrower! http://www.ntma.ie/business-areas/funding-and-debt-management/euimf-programme/ There remains, however, the fact that Sweden has been slipping in certain rankings and has been unable to maintain its enviable record as among the top two or three economies in the world. As the phrase has it, starting a successful business is no problem, keeping it successful is. Ask the Finns! Which brings us back to Greece! http://www.reuters.com/article/2015/04/12/us-eurozone-greece-deal-analysis-idUSKBN0N306W20150412 There is good and bad economic policy advice. Dedicated followers of this blog can make their own choices as to which is which. @jto The bill for the last boom was added to the sovereign balance sheet. Around 150bn. You remind me of India Shining advocates from 2006. Why was India going to become the largest economy in Asia? Because that’s the why. And it wasn’t. @DOCM re: The Greek link from Reuters. That writer has no idea what he is talking about if he considers that Greece, even if she grovelled and complied with every whim of the Troika, could ever contemplate restructuring its debts to such an extent as to pay off IMF and ECB bonds. The IMF alone is owed approx 33 billion (10.2%) of total debt. Add the ECB bonds (a figure I do not have at present), and consider what country, banker or institution will offer the finance to buy out those loans while at the same time extending the maturities of all the loans. It is a non-runner. The lenders (ECB, IMF, EFSF etc) made bad loans to Greece to buy out (with a haircut) bad loans made by the private sector to Greece. The only way out is for a very long rescheduling of maturity on all loans, or a hard default. It is a question of mathematics. When Buffet comments, the financial world listens. http://www.ekathimerini.com/4dcgi/_w_articles_wsite3_1_09/04/2015_548995 The Greek government has now, it seems, formally denied the FT report that it might default on IMF loans. CSO data today shows that despite strong aggregate wage growth ( pay per head plus change in employment) Irish household gross disposable income rose by just 0.7% last year, in part due to strong rise in taxes. Consequently , households funded higher consumption by running down the savings ratio, from 12.7% to 11.1%. @ JR In fact, it is n’t! It is a question of politics. Especially for Tsipras! How to price this in terms of bond risk when Mario is still doing “everything it takes”. What if EIT pushes the UK out of the EU? How to square the circle ? http://www.irishtimes.com/news/politics/uk-exit-from-eu-a-serious-concern-for-ireland-says-kenny-1.2176510 Good article in today’s Irish Examiner: http://www.irishexaminer.com/viewpoints/analysis/welcome-to-a-world-where-interest-rates-hardly-exist-at-all-323970.html No problems….just as long as those interest rates don’t go up! Comments are closed.