As the FT notes:
Ireland’s central bank governor has indicated that Brian Cowen’s government needs to go even further in cutting the forthcoming budget if it wants to restore international confidence in its management of the economy.
Patrick Honohan’s comments, at a conference in Dublin on Monday, reflect mounting market concern at Ireland’s deficit, the largest in the European Union.
Of course Ireland could cut more, but it might as well say it’s going out of business in that case. As Paul Sweeny of the Irish Congress of Trade Unions said in reaction:
We’re already seeing increasing unemployment, reduced government revenues and companies going out of business. “he government is going too far on the cuts. To call for more would push us into a deflationary spiral.
He’s right.
And to a certain degree Ciaran O’Hagan, head of rates research at Soci?©t?© G?©n?©rale in Paris was right too when arguing that rather than just slashing spending, Ireland’s government would bolster creditworthiness by announcing structural reforms, such as legislating for increases in the retirement age, introducing a property tax and adopting an independent means of fiscal oversight, such as the Office for Budget Responsibility in the UK.
I’m not sure about all the prescriptions, but he’s right that cutting is irrelevant now — the issue is showing that there is a plan to get out of the mess Ireland’s got into. Unless there’s such a plan nothing will work. And deflation and economic collapse will surely follow.
But I see no sign of that from the current government. No wonder emigration is rising. And that’s sad.
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Ireland is bust, but not just because of fiscal measures. Ireland is bust largely because we had one of the largest property bubbles in history, because banks recklessly lent to inflate this bubble, because private indebtedness soared to “get on the ladder” in this bubble, and now the debts are due to be paid, and the Government’s only “answers” are to socialise the gambling losses of the elite and to then tell everyone else – footing the bills for the elite, remember – that there’s no money left for social spending for you, as 50-60% of GNP has already been flushed down the black hole of unlimited bank bailouts.
To paraphrase a Bushism, No Creditor Left Behind.
Ireland is a corrupt kleptocracy, but then that’s what you get when you elect Fianna Failure 3 times in a row. If there’s any Irish people reading this, to quote an infamous newspaper headline from 1997: it’s Payback Time.
Not surprising that Ireland experienced the worst property bubble when it stupidly abolished residential property tax 1997 and introduced tax incentives to home buyers. Annual property taxes always have high collection rates, and if sensibly applied are progressive and curb speculation. Of course, the best form of property tax is LVT because it doesn’t penalise owners from making improvements.
Not sure the ECB would like it, but Ireland could put a floor under its problems by creating a parallel currency with its bonds.
Simply accept them at face value as settlement of government taxes and charges. More boldly they could make them legal tender for bank debts.
Then there would always be a demand for them via a simple arbitrage and ‘international investors’ can go whistle.