The best behaved pupil?
Posted on January 26, 2014 by Tom Healy
As memories of the Troika in Ireland recede and as the narrative has been truly set we should pause and ask some hard questions. In a recent article entitle Ireland: The Best Behaved Pupil? on the Policy Network website (State of the Left) I have argued that 'the great irony of recent months is that just as Ireland exits from the ‘bailout’ a public debate has begun on the merits of cutting income taxes to ‘put more money’ into the pockets of hard pressed middle-income families. This might prove popular before various elections but could spell future trouble if it were seriously implemented especially as Ireland has chosen, by default, to aim for low-tax, low public provision, low employer and employee social insurance spend, light-tough regulation and State-shrinking sales of public assets and withdrawal of universal goods and services.'
The popular image promulgated by the Troika and commenters within Ireland is that fast, deep fiscal adjustments pay off and confidence in the markets may be restored relatively quickly by sticking to a plan and not deviating. It is also claimed that Irish people generally did not protest and that the extent of social and political cooperation was remarkable and salutary for a country that had experienced so much pain over an extended period of time (even though in many respects Ireland took one for Europe by not burning the senior bondholders in 2008-2010).
The process of adjustment is far from over yet as Ireland’s government debt level is twice the Maastricht limit of 60% of GDP and the government deficit is still well in excess of the ‘structural deficit’. Depending on growth in Ireland and in Europe in the coming years we can expect further fiscal tightening and, the very least, continuing ‘fiscal discipline’. This translates as targeting a ‘primary budgetary surplus’ for the coming two decades until the government debt level is brought down closer to 60% of GDP.
Somehow, the lessons have not been learned in Europe or in Ireland. Fresh thinking and more imaginative political initiative is necessary.