Shock action may lead to longer recession
It might help to keep the focus on what the Economic and Social Research Institute (ESRI) said this week about the deficit dilemma.
Four years is too short to get the budget deficit down to 3% of GDP, it said in its latest economic review.
Arguing for the extended deadline it said conversations with experts showed they did not believe we could reach that 3% target by 2014.
Alan Barrett one of the main authors of the ESRI bulletin said pushing the target out to 2016 was the best course of action, that would enhance rather than damage our standing.
Barrett and his colleagues argue that the short sharp shock treatment, risks pushing us into a prolonged or Japanese type of recession that lasted over a decade.
The government think tank also said the Croke Park agreement would have to be seriously revisited and he raised the spectre of “mandatory” job losses becoming a distinct possibility as the country grapples with its unsustainable cost base.
Mary Harney for example admitted recently the HSE wage bill annually is €10 billion that cannot be touched under the Croke Park agreement while old people sleep in corridors.
What is clear from a lot of the recent commentaries on the economy is a broad agreement that the national finances have to be sorted out unless we want the International Monetary Fund down on top of us like a ton of bricks.
It seems that for too long the public sector wrote its own rules and now the bubble is about to burst.
Nearly half the annual budget goes to service pay and pensions in the public sector and if billions have to be slashed off vital front line services to stabilise the economy then those behind the scenes have to take some of the hit also.
Those are the rules in the private sector, just ask any one of the near 500,000 who are on the dole.
One of our major problems is that key groups such as the top medics, teachers and GPs are well protected from the chill winds of the downturn.
It’s a fact that experienced nurses could do a huge amount of the work done by GPs and they would not have to charge €60 a pop every time you needed an antibiotic for a sore throat.
Charles Larkin, research associate, Department of Economics, Trinity College Dublin, told a Certified Public Accountant’s conference the bank guarantee was a “direct result of the lack of expertise that exists at policy making level in the Department of Finance”.
It was important too the electorate understood he difference between “fact and fiction” if we are to have a better understanding of and impact on how these decisions develop.
“The fact is that if you cut, you don’t grow. Cuts are necessary for fiscal retrenchment and to calm nervous international capital markets but they do not result in growth.
“Fiscal retrenchment slows the economy, slows growth and weakens consumer and business sentiment.”
As a result of the cuts about to be implemented growth in the real economy as experienced by Irish citizens in terms of their wages, standards of living, earning power etc will be much more difficult to achieve and it will take longer.
“Increasingly, I believe our recovery will be based on the ‘new normal’ spectrum of low growth, high unemployment and limited credit” he concluded which is precisely what the ESRI warned against earlier in the week.
The most depressing point in all of this is that a change of government will not make a blind bit of difference to the reality slowly evolving before our eyes.
