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An ‘easing’ of austerity? October 15, 2013

Posted by WorldbyStorm in Economy, Irish Politics.
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Today we’re going to hear about, well, not giveaway’s, but how things are getting better. Even if in its actuality the Budget itself – as with its immediate predecessors – is yet again making things worse for many people. And part of that, a token – as it were, will probably be €600m less in terms of expenditure cuts. That will be what passes for a stimulus around these parts. Or perhaps some of those monies will go on efforts to increase employment. Perhaps.

Reading a piece in the SBP by Megan Greene, chief economist with Maverick Intelligence, senior fellow at the Atlantic Council and a research fellow at TCD asking whether the €600m ‘easing of austerity’ will be worth it, the question raised is ‘for who?’ For those whose services are not impacted to the same degree it most certainly will. But Greene is anxious about two areas:

Despite recent positive economic indicators, there remain two main issues that could really undermine economic growth in Ireland. First, while unemployment is falling, this is partly due to emigration rather than significant job growth. Nearly three-fifths of unemployed in Ireland have been out of work for more than a year, making it more difficult for them to find employment. It is difficult to see how domestic demand will return to Ireland in the absence of significant jobs growth.
Second, Ireland’s banks are not likely to resume lending any time soon. They are currently being subjected to an in-depth Asset Quality Review (AQR). Done properly, the AQR would likely find capital holes in all the Irish banks. More likely, the Irish AQR will be a fudge, given that it is set to be a model for the wider AQR being rolled out across Europe next year by the ECB. If Irish banks aren’t forced to finally address their non-performing loans, they will not lend again and Ireland will face a sluggish, creditless recovery.

And she continues:

In the short term, Ireland should have no trouble exiting its bailout programme, particularly if supported by a credit line from international lenders. Following the restructuring of Ireland’s promissory notes and the extension of maturities on its official sector loans, Ireland’s debt redemption schedule over the next few years is very favourable. Investors seem to have drunk the Kool-Aid on Ireland being a model student, and borrowing costs for the country should remain fairly low over the next few years.

But the bad news, from her perspective is that:

Ireland’s fiscal dynamic will become an issue a few years down the line though. While the country has reduced its budget deficit massively since 2008, it still has the highest overall government deficit in the EU at around 7.5 per cent of GDP this year. Ireland is also still running a primary deficit, which means that even excluding its interest costs, the government is spending more than it is raking in.

And:

If economic growth remains sluggish in Ireland, the country’s debt burden will continue to grow. It is possible that, eventually, the only option for Ireland – and some of the other peripheral eurozone countries – will be to write down some of its debt. Having worked hard to exit its bailout programme, Ireland could find itself shut out of the capital markets and forced to request a new one.
Repeating the bailout ordeal and once again ceding national sovereignty hardly seems worth the Euro 600 million easing in retrenchment the government is claiming as a victory in the 2014 budget.

And yet, and yet. If that is the case, the idea that €600m is going to make a significant impact in the context of the scenario she outlines above seems deeply improbable. The primary deficit is, as far as I can make out, effectively ended by the implementation of Budget 2015, and the figures for that are already broadly locked in.

This is the problem with the argument around the €600m. As a token of an ‘easing’ of austerity it is far too small. As a threat to ‘retrenchment’ it is equally small. Which brings one to the conclusion that there’s something essentially cosmetic about all the rhetoric pro and contra.

And it points up in a way the problem the government faces. The end of the bailout is near meaningless because it won’t have any particular impact on the ordinary citizen, at least in terms of their perception of their own situation. The €600m is a sop, and no more than that, in part to a political class which is getting very antsy about the electorate. And look again at some of the measures the Irish Times outlines this morning as being part and parcel of the Budget – significant reductions in welfare for the under-26s, removal of telephone allowances for pensioners, prescription charge rises and so on. They’re right to be antsy because there’s another Budget in twelve months time that has to find yet more monies, and again will be tilted sharply towards expenditure cuts rather than tax increases.

And if that €600m were of critical importance there is simply no way that the ECB, let alone other institutions, would have permitted it to be implemented.

No doubt, this will be trumpeted widely today. But worth bearing the above in mind.

Comments»

1. hardcorefornerds - October 15, 2013

I read “Irish fiscal dynamic” as “Irish fiscal dynamite” on first glance. Freudian!

good points about the 600m though.

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2. ivan - October 15, 2013

How many euro will cutting social welfare for under 26 save? How many will choose to emigrate. And in the meanwhile we will have talk of the evil of emigration and sinn fein asking how can we bring the emigrants back.

When the upturn comes it won’t be people from Kerry and leitrim coming back but an increased number of new Irish and no extra effort will be made to bring back the victims of austerity.

in a few years time pure serious there will be people writing about the new exciting Ireland with no second thinking on the forces forming it. could be argument to follow is some consequences of austerity are very good but the rest not.

Ach sure that’s only extremist sounding crap and focus really will be given on bringing back Irish people even over and above others and when it happens no body in ireland will be surprised cause long run this land is about its people. Always has been and always will be.

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3. workers republic - October 16, 2013

Again the Gov. have hit the vulnerable with an increase in prescription charges, at E2.50 per item, a three or four item “script” would often be more than they could afford while waiting for their dole. It will mean some people on welfare or low pay will go without necessary medication, with possible serious consequences.

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4. Bankers demand more poverty in Ireland | Dear Kitty. Some blog - October 17, 2013

[…] An ‘easing’ of austerity? (cedarlounge.wordpress.com) […]

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