Ireland ‘can’t grow out of debt burden’

Ireland will not be able to grow its way out of its current debt burden without some sort of restructuring of the bank debt, according to leading economist David Blanchflower.

“I don’t think it is possible for Ireland to grow its way out of this and it certainly isn’t without a growth strategy in the eurozone. We are now a few years into this crisis and the attitude seems to be to kick the can further down the road.”

Mr Blanchflower, a former member of the UK Monetary Policy Committee, says that Ireland is the only country among eurozone periphery states to benefit from membership of the euro. Moreover, the Irish economy can prosper in the future on the back of a low corporate tax rate and a well educated workforce, he says.

“But I don’t see where that is going to come from when your main trading partners, the UK and the eurozone, are either in recession or heading back into recession.”

There is a view that Germany is playing brinkmanship with the rest of the eurozone. In return for much greater control of national budgetary supervision, the EU’s biggest economy will eventually agree to a series of initiatives that will stoke growth in the region.

But Mr Blanchflower is highly critical of the German government and its handling of the crisis. He argues that there is no grand strategy to resolve the eurozone’s deep rooted problems. But Germany will eventually have to pay the growing costs of keeping the euro together — if the project is to survive, he says.

“It would have been much cheaper to agree to debt mutualisation and other policies three years ago.”

A debt deal will have to be agreed for Ireland otherwise it faces a debt deflationary spiral. The Government is going to have to adopt a tough negotiating stance, he says. “But I don’t see Greece remaining a member… I don’t see how it can stay in.”

The ECB’s outright monetary transaction programme unveiled last month was hailed as a game-changer. It will buy unlimited amounts of short term debt of beleaguered member states in return for structural reforms.

Mr Blanchflower describes the policy “as very flexible” but not a game-changer. A growth strategy is the only solution, but the eurozone has resorted to muddling through, which is insufficient in the longer term, he says.

Mr Blanchflower, currently an economics professor at Dartmouth University, was in Dublin yesterday to take part in the Davy Stockbrokers annual conference.

He also thinks Barack Obama will win the US election, saying “It is not as close as you think.”

However, a Romney/Ryan ticket might better for the world economy due to their promised $8,000bn fiscal stimulus.

He is also highly critical of the Conservative government’s handling of the British economy. “They were in opposition for 13 years and when they get elected, they have no growth strategy.”

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