Friday

30th Sep 2016

Opinion

Ireland and Greece prove the naysayers wrong

  • 'Irish recovery could not have happened without the fiscal consolidation' (Photo: Eustaquio Santimano)

Irish Premier Enda Kenny has announced his country will exit its bailout programme in December.

When he took office in 2011, Ireland’s budget deficit was over 30 percent of GDP. Narrowing it to projections of 7.3 percent this year and 4.8 percent next, Kenny has restored market confidence in Dublin’s ability to sort out its long-term debts.

Dear EUobserver reader

Subscribe now for unrestricted access to EUobserver.

Sign up for 30 days' free trial, no obligation. Full subscription only 15 € / month or 150 € / year.

  1. Unlimited access on desktop and mobile
  2. All premium articles, analysis, commentary and investigations
  3. EUobserver archives

EUobserver is the only independent news media covering EU affairs in Brussels and all 28 member states.

♡ We value your support.

If you already have an account click here to login.

Investors are again willing to buy Irish bonds, raising funds and lowering borrowing costs.

In mid-2011, interest on Irish debt stood at 15 percent. Now it is below 4 percent and Ireland has raised sufficient cash balances to cover all its debt payments next year. Standard & Poor’s and Fitch have both returned their Irish rating to investment grade.

Without repairing its ability to manage its debts, Ireland’s government could not function for very long as a provider of essential public services. Irish recovery could not have happened without the fiscal consolidation which commentators attack as “austerity.”

This is why it is wrong to dismiss debts and deficits as the wrong problem, but let us examine what is often put forward as 'the real problem': unacceptably high unemployment.

Greece

Another bailout country is Greece.

There are those who blame its breakdown on "austerity," but to find the long-term cause one must go further back.

From 1981-89, Prime Minister Andreas Papandreou increased Greek spending by a mind-boggling 460 percent. Yet in the same period, Greece’s unemployment increased from 3 percent to over 7 percent of the workforce.

In the 1990s, the budget continued going up - by another 357 percent - but unemployment consistently kept rising too, reaching 12 percent by 1999.

Meanwhile, Greece’s public debt exploded from €2 billion in 1981 to €140 billion by 2000. Before the financial crisis hit, the spending bonanza had soared to €261 billion, meaning ever larger interest payments eating into the budget and jeopardising services.

Back to Ireland. There is now an array of Irish job statistics which look like even more of those "rewards" they were told would “never” come.

Unemployment benefit claimants have fallen for the last sixteen months consecutively. Job creation is at its highest for five years, with 34,000 new jobs in the last year while construction jobs grew by almost 6,500 in the second quarter of 2013.

Tech giants such as Facebook and Yahoo are looking to join the likes of Google and TripAdvisor in Dublin’s “Silicon Docks” area.

Meanwhile, the Irish economy is out of recession, with its predicted growth of 1.1 percent for this year expected to double to 2.2 percent next year. Consumer confidence is the highest for six years. Property prices are showing a sustained recovery and construction has risen by 11.7 percent in a year, the highest increase since 2006.

Ireland has done this whilst keeping its overall tax take down at 34.6 percent of GDP, and attracting investors with a 12.5 percent corporate rate.

Greece, in contrast, takes 44.7 percent of GDP in tax and has recently pushed corporate rates back up to 26 percent.

The Greek budget remains bigger than it was just eight years ago, at the height of the spending spree.

Taxation is Athens’ inadequate tool for cutting the deficit, which this year will pile on another €8.4 billion onto the debt. In turn, the debt will hit €323.1 billion – a new high of 176 percent of GDP. Greek unemployment increased to almost 27 percent.

According to some, the level of debt does not matter. Well, it does.

On 31 January, the economist Paul Krugman crowed that Ireland epitomized a “rather pathetic search for austerity success stories.”

Dublin’s recipe, Krugman pronounced, “promised rewards that haven’t arrived and never will."

Ireland is reaping the rewards Paul Krugman predicted would never come.

The Irish love their horse racing. I doubt they would take many tips from those who say "austerity" / "fiscal consolidation" does not work. Nor should Europe.

The writer is a Belgian MEP and vice president of the European Conservatives and Reformists group in the EU parliament

Column / Crude World

Why Putin's union doesn't want to work with the EU

The EU should not dismiss institutional cooperation with the Russia-led economic association. But Moscow's previous behaviour with Ukraine and Moldova shows it won't let its neighbours turn too much to the West.

Opinion

Steel overcapacity crisis - from Europe to China

While the debate has escalated about China’s steel overcapacity, it is not exactly new. The first postwar steel crisis occurred in the US and Europe. Beijing seeks to avoid a deja vu of bad policies.

Stakeholders' Highlights

  1. ACCAFinTech Boom Needs Strong Guidance to Navigate Regulatory Hurdles
  2. Counter BalanceWhy the Investment Plan for Europe Does not Drive the Sustainable Energy Transition
  3. Nordic Council of MinistersThe Nordic Region Seeks to Make Its Voice Heard in the World
  4. Taipei EU OfficeCountries Voice Support for Taiwan's Participation in ICAO
  5. World VisionNew Tool Measuring Government Efforts to Protect Children Released
  6. GoogleDid You Know Europe's Largest Dinosaur Gallery Is in Brussels? Check It Out Now
  7. IPHRHuman Rights in Uzbekistan After Karimov - Joint Statement
  8. CISPECloud Infrastructure Providers Unveil Data Protection Code of Conduct
  9. EFAMessages of Hope From the Basque Country and Galicia
  10. Access NowDigital Rights Heroes and Villains. See Who Protects Your Rights, Who Wants to Take Them Away
  11. EJCAppalled by Recommendation to Remove Hamas From EU Terrorism Watch List
  12. GoogleBringing Education to Refugees in Lebanon With the Clooney Foundation for Justice