Tuesday, July 21, 2009

Ireland facing massive spending cuts

Ambrose Evans-Pritchard in the Daily Telegraph writes a depressing forewarning to those in countries engaging in massive debt funded state “stimulus” activities. He does so by pointing at Ireland, where the news is truly bleak. Given Ireland has a similar population to New Zealand, it is worth those who preach “borrow spend and hope” to give pause for thought.

Ireland, you see, has gone down the stimulus line. It bailed out its banks, guaranteeing all deposits. The result is a debt trap imposed upon the state. The interest is now crippling the Irish government. The Irish government is currently borrowing 300 million euro a week to cover this, at penalty interest rates for fear it will default. You see Ireland has external debt of 811% of GDP, albeit this includes substantial private debt held by financial institutions, but it also includes government guarantees of bank debt and the nationalisation of banks.

A report commissioned by the government aims to abolish the budget deficit by 2011, and recommends drastic cuts:
- 17,300 public sector jobs to go;
- 6,900 teacher jobs to go, with commensurate closure of many schools;
- Public sector pay cuts
- Welfare benefit cuts of 5%
- Child benefits to be strictly targeted
- Hospital A&E fees to be increased.

Without such drastic measures, Ireland risks defaulting on its debt, making future borrowing near impossible, forcing Ireland to cut even more drastically. The article expresses fear that other Western countries, such as the UK and the US, face similar risks. UK national debt is now over 90% of GDP, France is approaching that level, Italy is at 120%.

You see, Japan has been engaging in fiscal stimulus for well over a decade now, to no avail. Public debt is estimated to be 240% of GDP by 2015. Hasn’t quite worked has it?

The truth is that Gordon Brown, Barack Obama and Kevin Rudd have all embarked on a gamble with your childrens' taxes - fiscal stimulus is being undertaken because the short term political gain is to soften the recession - and because none of them have a political instinct for less government - and none of them are willing to take a gamble on "do nothing you can't fix it".

After all, do you think people in the British Labour Party, US Democratic Party and Australian Labor Party sit around thinking how they ought to get out of the way of people?

Oh and if you want to read the report on cutting Ireland's public spending go here, and here. You'll see it isn't half as dramatic as many are making out.

1 comment:

KG said...

Great post--the Emperor is stark, bollocky naked and very few in the MSM have either the knowledge or the integrity to point that out.
I fear for the future.