What would the consequences of not taking the IMF bailout have been?

einshteen

Please forgive my lack of understanding of economics. I'm curious about why Ireland isn't in arms about bailouts the way Greece is.

I can only guess that it's because we feel that the alternative (not taking the bailout) would carry even bleaker consequences. The government has certainly given the view that not taking the bailout would be disastrous.

So, what would be the consequences of not taking the bailout really be? Would we be booted out of the EU, or would we be able to recover faster without the debt hanging over our heads?

Nijmegen

There are two problems it addresses: The deficit, and the banks.

With respect to the deficit, we earn (to use round numbers) €30bn in tax and spend €50bn a year. If we did not have an IMF bailout then we could not borrow the €20bn difference from the markets at an affordable rate (they believed debt in Ireland is too high and would want more interest to secure against the possibility of a later, likely, default).

If we had to cut €20bn a year in government spending - actually more than that, because the €20bn shock to the economy would drive down tax receipts even further in a death spiral - well, that would be a disaster. Goodbye social welfare, goodbye public sector pay, goodbye cruel world it's over.

With respect to the banks, it's a more nuanced argument as to what would happen. Our banks would certainly go bust. Your life savings would possibly disappear. Maybe, maybe not. Best case scenario, Ireland becomes a lot more impoverished. Worst case scenario, UN peacekeepers are required.

Scofflaw

Nijmegen wrote: »

There are two problems it addresses: The deficit, and the banks.

With respect to the deficit, we earn (to use round numbers) €30bn in tax and spend €50bn a year. If we did not have an IMF bailout then we could not borrow the €20bn difference from the markets at an affordable rate (they believed debt in Ireland is too high and would want more interest to secure against the possibility of a later, likely, default).

If we had to cut €20bn a year in government spending - actually more than that, because the €20bn shock to the economy would drive down tax receipts even further in a death spiral - well, that would be a disaster. Goodbye social welfare, goodbye public sector pay, goodbye cruel world it's over.

With respect to the banks, it's a more nuanced argument as to what would happen. Our banks would certainly go bust. Your life savings would possibly disappear. Maybe, maybe not. Best case scenario, Ireland becomes a lot more impoverished. Worst case scenario, UN peacekeepers are required.

One should probably shade that very good summary by saying that it's not 100% guaranteed that those would be the results. Magical pigs might have suddenly deposited billions on Leinster House.

Had the government engaged in the same extremely fast footwork that Iceland's did, the collapse of the banks might not have involved the loss of your deposits, at least immediately, and had the state thereby avoided taking on the debts of the banks, at least immediately, our debt situation would not have been so bad. However, even Iceland's very rapid footwork did not prevent them needing an IMF bailout, so I think it's improbably optimistic to claim that, even with the best footwork in the world, we wouldn't have needed the bailout. Our deficit is very large, our borrowing needs are correspondingly large, and however sanguine one is about the markets' willingness to move on after a large credit event, anything over a six-month exclusion would have seen the state broke. Iceland was out from 2006 to this month.

I think that whatever way you actually slice it, you still come out requiring the bailout. Maybe not the same size, maybe not the same rates, but a bailout nonetheless - I can't see any circumstance in which it isn't needed.

cordially,
Scofflaw

MoodRacer

Scofflaw wrote: »

One should probably shade that very good summary by saying that it's not 100% guaranteed that those would be the results. Magical pigs might have suddenly deposited billions on Leinster House.

Had the government engaged in the same extremely fast footwork that Iceland's did, the collapse of the banks might not have involved the loss of your deposits, at least immediately, and had the state thereby avoided taking on the debts of the banks, at least immediately, our debt situation would not have been so bad. However, even Iceland's very rapid footwork did not prevent them needing an IMF bailout, so I think it's improbably optimistic to claim that, even with the best footwork in the world, we wouldn't have needed the bailout. Our deficit is very large, our borrowing needs are correspondingly large, and however sanguine one is about the markets' willingness to move on after a large credit event, anything over a six-month exclusion would have seen the state broke. Iceland was out from 2006 to this month.

I think that whatever way you actually slice it, you still come out requiring the bailout. Maybe not the same size, maybe not the same rates, but a bailout nonetheless - I can't see any circumstance in which it isn't needed.

cordially,
Scofflaw

I don`t think the problem is the loans from the IMF, you could manage large loans at 1%, the real problem lies with Europe and thr ECB. It is the penal rate of interest being charged by our `friends`in Europe that will kill us.

Good article on Icelands recovery:
http://www.reuters.com/article/2010/04/17/us-iceland-economy-idUSTRE63G1P520100417

Scofflaw

MoodRacer wrote: »

I don`t think the problem is the loans from the IMF, you could manage large loans at 1%, the real problem lies with Europe and thr ECB. It is the penal rate of interest being charged by our `friends`in Europe that will kill us.

Good article on Icelands recovery:
http://www.reuters.com/article/2010/04/17/us-iceland-economy-idUSTRE63G1P520100417

The IMF loans, after currency conversion is factored in, come out as about 5.7% (base 3.7% plus currency conversion costs). It's the ECB emergency liquidity that's at 1% - which is fortunate, since it's a lot larger than the whole of the bailout (c. €160bn compared to €67.5bn).

cordially,
Scofflaw

Permabear

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Nijmegen

Permabear wrote: »

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Well, that's after we'd collapsed our economy. Take the banks out of the issue and focus on current spending by government, which is around 30% of GDP. If you cut that down from €50 to €30bn that means that 12% of the entire economy would go poof. Likely even more given shock, multiplier, etc. Anywhere up to 20% of the economy.

Given the rise in those needing social welfare and the fact that you don't get full face value when you fire a public servant (merely a reduction of their net cost after tax to the value of the social welfare provision) you would likely need to cut more than a quarter of the PS gross tonnage, perhaps a third or even more!

Social welfare rates themselves would need to be cut by similar amounts.

The fact is, the state would have to trim itself into a €30bn girdle from a €50bn weight.

Whilst some relish this, the downsizing of an inefficient government, to say it's like cutting off your nose to spite your face is an understatement.

RichardAnd

Nijmegen wrote: »

Well, that's after we'd collapsed our economy. Take the banks out of the issue and focus on current spending by government, which is around 30% of GDP. If you cut that down from €50 to €30bn that means that 12% of the entire economy would go poof. Likely even more given shock, multiplier, etc. Anywhere up to 20% of the economy.

Given the rise in those needing social welfare and the fact that you don't get full face value when you fire a public servant (merely a reduction of their net cost after tax to the value of the social welfare provision) you would likely need to cut more than a quarter of the PS gross tonnage, perhaps a third or even more!

Social welfare rates themselves would need to be cut by similar amounts.

The fact is, the state would have to trim itself into a €30bn girdle from a €50bn weight.

Whilst some relish this, the downsizing of an inefficient government, to say it's like cutting off your nose to spite your face is an understatement.

I find it hard to argue with this. To use an analogy, Ireland is like a junkie hooked on credit and whilst it was very easy to swell up on the stuff, to have it cut off over night would only cause dreadful with-drawl sickness. Thus, a gradual weaning off credit-crack would be more favourable.

I strongly believe that anyone promoting the idea that an instant cut of 20 odd billion in one budget would result in a hasty journey up the road to recovery is being disingenuous.

Nijmegen

RichardAnd wrote: »

I find it hard to argue with this. To use an analogy, Ireland is like a junkie hooked on credit and whilst it was very easy to swell up on the stuff, to have it cut off over night would only cause dreadful with-drawl sickness. Thus, a gradual weaning off credit-crack would be more favourable.

I strongly believe that anyone promoting the idea that an instant cut of 20 odd billion in one budget would result in a hasty journey up the road to recovery is being disingenuous.

Well, if we did it and left the yo-yo it'd certainly reduce costs in the economy, make us more competitive and likely lead to, at some point, a bounce back at celtic tiger like speeds.

Of course, the fact that there'd be ads on the telly in Britain of Irish people saying "Paddy earns less than £3 a day..." might lead one to consider that rapid growth is only really fun when you're not growing from the lowest possible base.

Valmont

Permabear wrote: »

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*Ghastly Music*
What about Deflation! Prices will fall! Things will be cheaper!... I'm seeing many suggestions of cutting "too fast" (never specified exactly, funnily enough) being countered with reference to a deflationary spiral (insert hideous deflation related terminology here). I would ask people who support this viewpoint, how can we not want deflation? With a decade of a credit fueled bubble, prices for almost everything rose dramatically, what is so terrible about them falling lower?

Nijmegen

Valmont wrote: »

*Ghastly Music*
What about Deflation! Prices will fall! Things will be cheaper!... I'm seeing many suggestions of cutting "too fast" (never specified exactly, funnily enough) being countered with reference to a deflationary spiral (insert hideous deflation related terminology here). I would ask people who support this viewpoint, how can we not want deflation? With a decade of a credit fueled bubble, prices for almost everything rose dramatically, what is so terrible about them falling lower?

Deflation is not the problem, it'd be the real net rise in poverty.

If a large portion of the workforce - public sector and private sector following the loss of the multiplier (IE, jobs supported by the wages spent of PS workers, govt spending etc) - suddenly end up on the dole, they have less wealth. If you cut the dole, they have even less again.

Reducing costs in our economy is a good thing. But in the scenario we outline of cutting €20bn+ in one year, extreme poverty will follow for many people and the middle class would likely be wiped out in Ireland.

Scofflaw

Valmont wrote: »

*Ghastly Music*
What about Deflation! Prices will fall! Things will be cheaper!... I'm seeing many suggestions of cutting "too fast" (never specified exactly, funnily enough) being countered with reference to a deflationary spiral (insert hideous deflation related terminology here). I would ask people who support this viewpoint, how can we not want deflation? With a decade of a credit fueled bubble, prices for almost everything rose dramatically, what is so terrible about them falling lower?

Deflationary spiral isn't quite the same thing as deflation. A deflationary spiral is where lower prices lead to lower production, which leads to lower wages, which leads to lower prices...and so on.

If you concentrate solely on prices, that can seem nice as long as one pretends one will still be getting the same wages, but the 'lower production' bit is important - in short, businesses start to collapse, which leads to higher unemployment, which is what produces the lower wages. Deflation is a sign of contraction, just as inflation is a sign of contraction. That can be very hard to get out of and return to growth. This is where Japan has now been for a couple of decades - but at least Japan was a large industrialised economy to begin with.

In respect of sudden cutting of the budget, what this means is that cutting the budget depresses the economy - the opposite of stimulus spending. That has two obvious knock-on effects on the budget - reduced taxes, and increased social/welfare costs. In turn, that means you're chasing your deficit, because your large cut in spending produces its own requirement for further cuts, which in turn further depress the economy, and so on. If the economy then enters a deflationary spiral, that process continues.

Does this make Ireland more competitive? Not necessarily, because Ireland's labour pool is unusual in that emigration can be a very large 'escape valve' for the pressure to reduce wages, and most raw materials are imported. Emigration running at 50,000 a year in a labour pool of a couple of million can alleviate the pressure of the couple of percent of unemployment it replaces, while import prices don't have to fall at all. What you could end up with is a situation where Ireland has a far smaller economy consisting of uncompetitive companies, who are sheltered from more efficient foreign competition simply by virtue of the fact that no foreign company would find it worth their while entering the Irish market.

We've been there before.

cordially,
Scofflaw

Dannyboy83

I think the bailout will come to be seen as more of a curse than a saviour in the years ahead.

It's just an excuse to continue to behave badly, not get our act together and just lets our governments kick the can down the road and hope that somehow, a solution will miraciously materialise.
e.g.

Scenario 1:
Alcoholic goes to the doctor, doctor says you have 5 years to live unless you get your drinking under control.
Alcoholic gets his act together after some initial struggle.

Scenario 2:
Alcoholic goes to the doctor, doctor says you have 5 years to live unless you get your drinking under control - BUT - we have this shiny new liver we can transplant for you.
Alcholic gets new liver, continues to drink himself to death, knows he is living on borrowed time - "I'll deal with it tomorrow".

Scofflaw

Dannyboy83 wrote: »

I think the bailout will come to be seen as more of a curse than a saviour in the years ahead.

It's just an excuse to continue to behave badly, not get our act together and just lets our governments kick the can down the road and hope that somehow, a solution will miraciously materialise.
e.g.

Scenario 1:
Alcoholic goes to the doctor, doctor says you have 5 years to live unless you get your drinking under control.
Alcoholic gets his act together after some initial struggle.

Scenario 2:
Alcoholic goes to the doctor, doctor says you have 5 years to live unless you get your drinking under control - BUT - we have this shiny new liver we can transplant for you.
Alcholic gets new liver, continues to drink himself to death, knows he is living on borrowed time - "I'll deal with it tomorrow".

A problem with analogies like that is that there's no downside at all to giving up alcoholism, which makes the comparison invalid.

What further invalidates it is that the doctor has actually said "here's a dialysis contract, but you'll have to stick to this programme to get your liver back into condition for when the contract ends". Had the bailout actually been a free gift with no strings attached, your analogy would be more apt.

cordially,
Scofflaw

Chucky the tree

Dannyboy83 wrote: »

I think the bailout will come to be seen as more of a curse than a saviour in the years ahead.

It's just an excuse to continue to behave badly, not get our act together and just lets our governments kick the can down the road and hope that somehow, a solution will miraciously materialise.
e.g.

Scenario 1:
Alcoholic goes to the doctor, doctor says you have 5 years to live unless you get your drinking under control.
Alcoholic gets his act together after some initial struggle.

Scenario 2:
Alcoholic goes to the doctor, doctor says you have 5 years to live unless you get your drinking under control - BUT - we have this shiny new liver we can transplant for you.
Alcholic gets new liver, continues to drink himself to death, knows he is living on borrowed time - "I'll deal with it tomorrow".

I think your under-estimating how big of an "intitial struggle" it would be. Dropping to drop €20-€30bn in one year would catastrophic imo. Huge parts of dublin would really become ghettos and no go areas and I think it would be very difficult to recover from. People complain about the crime rate now imagine in with little to no no social welfare being paid and very little money going to the Gardai.

Permabear

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Dannyboy83

Scofflaw wrote: »

A problem with analogies like that is that there's no downside at all to giving up alcoholism, which makes the comparison invalid.

To you - yes, because you are thinking rationally.
Addicts don't think rationally.

For them - there are major downsides to giving up x and they see this as entirely rational: "My life is so much better with x, it would be so much worse without x, I am willing to do y so long as I can continue to have x, even if y kills me, it's not really worth living without x anyway.....".

We hear this from the government/unions all the time:
"Our lives are so much better because we can keep borrowing, it would have been catastrophic for ireland if we had to cease borrowing/spending proligately, we are willing to increase taxes by 10 billion over 4 years so that we can continue to spend wildy......"

At which point the Addiction counsellor tries to intervene with logic "Yes, it would have been bad to bring spending in line with income, but increasing taxes by 10 billion Euro over the next 4 years is going to be considerably worse, probably fatal, so you must see that your rationale for continuing your addiction is utterly illogical."

What further invalidates it is that the doctor has actually said "here's a dialysis contract, but you'll have to stick to this programme to get your liver back into condition for when the contract ends". Had the bailout actually been a free gift with no strings attached, your analogy would be more apt.

Fair point.
If it was a free gift - at least there would be some logic in accepting it. LOL!

The fact that the conditions attached to it are penal, left very little doubt that we are consumed by our addiction. i.e. We're crackwhores.

Permabear

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Scofflaw

Dannyboy83 wrote: »

To you - yes, because you are thinking rationally.
Addicts don't think rationally.

For them - there are major downsides to giving up x and they see this as entirely rational: "My life is so much better with x, it would be so much worse without x, I am willing to do y so long as I can continue to have x, even if y kills me, it's not really worth living without x anyway.....".

We hear this from the government/unions all the time:
"Our lives are so much better because we can keep borrowing, it would have been catastrophic for ireland if we had to cease borrowing/spending proligately, we are willing to increase taxes by 10 billion over 4 years so that we can continue to spend wildy......"

At which point the Addiction counsellor tries to intervene with logic "Yes, it would have been bad to bring spending in line with income, but increasing taxes by 10 billion Euro over the next 4 years is going to be considerably worse, probably fatal, so you must see that your rationale for continuing your addiction is utterly illogical."

No, that just deals with the addict's struggle with their own self-justification - there's still no real downside to giving up alcoholism.

The analogy is certainly apt in respect of the justifications offered by those 'addicted' to high public spending for retaining such spending, and in the case of some groups there may well be no further downside to reducing their supply other than what they themselves experience - but that doesn't scale up to deal with the effects of the massive overall reduction in spending that eliminating our budget deficit in a short period involves.

It's easy to look at group A and say "if we cut their transfers, they'll experience an uncomfortable transition period while they become more productive", and then do the same for group B, group C, etc etc. As long as we look at each of them in isolation, we can easily justify the reduction to ourselves - but we're still taking €20bn out of the Irish economy in one fell swoop, and the effects will not, I'm afraid, be limited to those groups. Even junkies spend money in the productive economy.

It's a bit like using the fact that losing a finger doesn't constitute a major handicap - or trauma - and scaling that up to claim that therefore losing all your fingers isn't either a major trauma or a major handicap. It doesn't work like that.

cordially,
Scofflaw

Nijmegen

I think myself and Scofflaw would be in agreement with you that big government deficits are a bad thing. I know I certainly am not in favour of running a huge systemic deficit. And a cornerstone of Keynsean economics so many proponents of big stimulus forget about is that you're supposed to spend less than you can in good times to counterbalance the major spending required during bad times.

However, in Ireland we are not talking about a stimulus program that will jump our government deficit from 3% of GDP to 10% in a year to kick start the economy, and another one next year if that doesn't go well.

We have a systemic budget deficit, the result of many things including a poorly constructed state revenue collection system (relying on one off taxes like stamp duty), a massive bubble collapse and a state that gorged itself to massive proportions in times when it could afford to do unwise things.

Cutting that deficit in one fell swoop would massively shock the economy - even a robust economy - and lead to a massive increase in poverty, and possibly social disintegration.

It's not that I don't think the state should get smaller than it even plans to, or that I like to see us borrow so much to maintain a level of a lifestyle... It's that I see the overnight collapse of government spending as an axe that would destroy vast swathes of the real, productive economy.

Valmont

Scofflaw wrote: »

A deflationary spiral is where lower prices lead to lower production, which leads to lower wages, which leads to lower prices...and so on.

After a decade of reckless credit-fueled expansion into property and other unsustainable ventures, is that not exactly what we need?

Scofflaw wrote: »

If you concentrate solely on prices, that can seem nice as long as one pretends one will still be getting the same wages, but the 'lower production' bit is important - in short, businesses start to collapse, which leads to higher unemployment, which is what produces the lower wages

Has that not happened already? It's still happening and with our commitment to spending, surely it will get worse and worse, albeit at a slower and more painful rate, prolonging the necessary correction.

Scofflaw wrote: »

In respect of sudden cutting of the budget, what this means is that cutting the budget depresses the economy - the opposite of stimulus spending. That has two obvious knock-on effects on the budget - reduced taxes, and increased social/welfare costs. In turn, that means you're chasing your deficit, because your large cut in spending produces its own requirement for further cuts, which in turn further depress the economy, and so on. If the economy then enters a deflationary spiral, that process continues.

This is why I'm skeptical of this line of thinking; speaking of a deflationary spiral involves some sort of unstoppable spiral into an economic apocalypse which we know would just not happen. How could it? Is it the idea that without government spending on its colossal scale, the economy could not function? That we would all be broke and poor forever? I just don't buy it. I understand that yes, things would get bad, but haven't they already gotten bad and are getting worse? Why would it be so awful to let the corrections happen as quickly as possible as opposed to delaying the inevitable and putting it off for another day?

Nijmegen

Valmont, it's not that the economy couldn't function without government spending. In a hypothetical world with little or no government spending the economy would trundle along fine as private enterprise would replace its functions.

The issue is that at this time government represents a third of the economy that does exist, and removing a huge chunk of that would seriously damage the rest of the economy.

You need to reduce government spending slowly. And I'm for a quicker approach to that than we're taking, and the idea that government should be smaller anyway as it stands inefficient today.

But to do that overnight?

I know using Argentina as an example is becoming a catch all, but poverty got as high as near 60% and extreme poverty almost 30% of the population.

That's what a fast deflation does.

Today, ten years later, that's back down to 9.9%

In Ireland it was 6.5% in 2006, down from 8.2% in 2003. 2009 it was 5.5%. I'm not sure of the latest figures, though I'd say the census will be a good benchmark.

Imagine that swing...

Permabear

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Valmont

I guess my problem is that I seriously doubt the ability of the government to reduce its own size, no matter what the time frame thus always leaving us open to a continual boom and bust cycle where we are supposedly "reliant" on the public sector to keep the economy ticking over during times of trouble. They have to pay their lobby groups, appease their unions, and pay off the voters in order to stay in power. I just can't envision this scenario changing.

Scofflaw

Valmont wrote: »

After a decade of reckless credit-fueled expansion into property and other unsustainable ventures, is that not exactly what we need?

Has that not happened already? It's still happening and with our commitment to spending, surely it will get worse and worse, albeit at a slower and more painful rate, prolonging the necessary correction.

This is why I'm skeptical of this line of thinking; speaking of a deflationary spiral involves some sort of unstoppable spiral into an economic apocalypse which we know would just not happen. How could it? Is it the idea that without government spending on its colossal scale, the economy could not function? That we would all be broke and poor forever? I just don't buy it. I understand that yes, things would get bad, but haven't they already gotten bad and are getting worse? Why would it be so awful to let the corrections happen as quickly as possible as opposed to delaying the inevitable and putting it off for another day?

In brief, economic shock. That is, there are different effects from cutting very rapidly and deeply, because the economy doesn't get time to adjust.

A company that loses 40% of its revenue stream over the course of 3-4 years will almost certainly adapt and survive, because it will have had time to move into other revenue areas. A company that loses 40% of its revenue stream overnight doesn't have that time, and can only survive by immediately and rapidly shedding workers and productive capacity - which will probably leave it without the capacity to handle some of its other clients, causing further contraction.

No, it doesn't necessarily last forever - there's almost certainly a bottom to it. In Ireland's case, given what we actually produce, I'd say that bottom is a very long way down from anywhere we'll reach on the current trajectory.

cordially,
Scofflaw

Scofflaw

Valmont wrote: »

I guess my problem is that I seriously doubt the ability of the government to reduce its own size, no matter what the time frame thus always leaving us open to a continual boom and bust cycle where we are supposedly "reliant" on the public sector to keep the economy ticking over during times of trouble. They have to pay their lobby groups, appease their unions, and pay off the voters in order to stay in power. I just can't envision this scenario changing.

That's a fair point - governments tend to cut only reluctantly, and only under real financial pressure, for the reasons you give. That doesn't, unfortunately, make any difference to the arguments against cutting suddenly.

cordially,
Scofflaw

Dannyboy83

Scofflaw wrote: »

In brief, economic shock. That is, there are different effects from cutting very rapidly and deeply, because the economy doesn't get time to adjust.

A company that loses 40% of its revenue stream over the course of 3-4 years will almost certainly adapt and survive, because it will have had time to move into other revenue areas. A company that loses 40% of its revenue stream overnight doesn't have that time, and can only survive by immediately and rapidly shedding workers and productive capacity - which will probably leave it without the capacity to handle some of its other clients, causing further contraction.

No, it doesn't necessarily last forever - there's almost certainly a bottom to it. In Ireland's case, given what we actually produce, I'd say that bottom is a very long way down from anywhere we'll reach on the current trajectory.

cordially,
Scofflaw

I can agree with the adjustment in revenue streams, this makes perfect sense.

The point I cannot understand
(and even fully ignoring this:


is that this entire plan is built on the idea that the economy will not shrink (possibly even grow, lol) with 10 billion of tax increases over 4 years.

The corollary is that €10 billion of expenditure cuts on an obese public sector = economy destroying, while €10 billion of tax increases on a decrepit private sector = nothing to be concerned about.

We know that net government expenditure is not going to shrink, it's projected to remain static at €48 billion per annum, right through until 2015.
And net income is projected to rise from €33bn to €43bn by 2015, through taxation.
Where is this income going to materialize from?

The public sector will become an even bigger segment of the overall economy, while the shrinking private sector will be expected to pay for the inexorable growth (as a proportion) of borrowing and interest payments. Surely the opposite outcome of the one intended?

I really cannot see how that plan is going to work.
The antidote to unsustainable borrowing is not more unsustainable borrowing.

Scofflaw

Dannyboy83 wrote: »

I can agree with the adjustment in revenue streams, this makes perfect sense.

The point I cannot understand
(and even fully ignoring this:


is that this entire plan is built on the idea that the economy will not shrink (possibly even grow, lol) with 10 billion of tax increases over 4 years.

The corollary is that €10 billion of expenditure cuts on an obese public sector = economy destroying, while €10 billion of tax increases on a decrepit private sector = nothing to be concerned about.

We know that net government expenditure is not going to shrink, it's projected to remain static at €48 billion per annum, right through until 2015.
And net income is projected to rise from €33bn to €43bn by 2015, through taxation.
Where is this income going to materialize from?

The public sector will become an even bigger segment of the overall economy, while the shrinking private sector will be expected to pay for the inexorable growth (as a proportion) of borrowing and interest payments. Surely the opposite outcome of the one intended?

I really cannot see how that plan is going to work.
The antidote to unsustainable borrowing is not more unsustainable borrowing.

I take it that's the fantasy plan from here: http://www.ntma.ie/IrishEconomy/multiAnnualBudget.php

I don't see that that's ever been even vaguely realistic, even before everybody else published projected growth figures that completely disagreed with those unbelievably rosy projections.

That's why my own prediction has been for some time now that we're looking at a 'lost decade' of high-tax sluggishness - something I wouldn't consider remotely acceptable were it not that the alternatives all appear to be worse.

glumly,
Scofflaw

Permabear

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