The effects of further reducing the deficit

spider guardian

Colm McCarthy writes in today's Sindo that...

McCarthy wrote:

For Ireland's prospective debt burden to be manageable, several things need to happen. The budget deficit needs to be reduced quickly and ideally to zero. The economy needs to start growing again at a decent rate. The European sovereign debt market, victim of devastating collateral damage from the policy failures of the last few years, needs to be reconstructed. And there had better be no more nasty surprises from the banking system.

http://www.independent.ie/opinion/analysis/lets-prepare-for-the-long-stay-at-rock-bottom-2940087.html

Morgan Kelly has called for this in the past also.

My question is that if reducing the deficit even beyond that demanded by the troika was politically achievable, would it be the right course of action to take? Would it increase confidence that Ireland is able to properly manage its finances, rid us of the need for further expensive and sovereignty-negating bailouts and lead to quicker recovery in the medium to long term?

Or would the economic and social shock of such an adjustment be simply too much to bear for a fragile economy and lead to a deflationary spiral that would see huge-job losses and kill-off a domestic economy already on its knees?

I would think more people would find it appealing if there was a good growth outlook for the world economy as a whole but the eurozone crisis has put-paid to that.

nesf

It's a catch-22 situation. Our economy will suffer if we try to reduce the deficit. Our medium to long term economic situation is even worse if we don't. Politically it's going to be nasty, it's going to be nasty for the people but we have to do it whether we like it or not for the future of the country.


Thus why all the major parties pretty much agree on this.