'Bond market being saved at expense of Irish society'
Spending cuts to be announced today by Finance Minister Brian Lenihan may end up sacrificing long-term economic growth for reducing the budget deficit, an Irish author and head of asset allocation at Credit Suisse Private Banking has warned.
Michael O'Sullivan, whose book, 'Ireland and the Global Question', was published in 2006, warned this week that Mr Lenihan's expected swingeing cuts could do long-term damage. "Arguably the Irish bond market is being saved at the expense of Irish society", said Mr O'Sullivan.
"By cutting spending you lower the trend line of growth and store up bigger fiscal problems down the line," he added.
Slash
Mr Lenihan has said he will slash about €4bn from spending next year in order to prevent the budget deficit widening beyond 12pc of gross domestic product (GDP), or four times the limit set down by the European Union. "Cutting deficits is a limited strategy because in the longer term you need growth to kick in," he said. "The issue is: where is your growth going to come from?"
Mr Lenihan plans to reduce the deficit to 3pc of GDP by 2014 to meet a European Commission deadline, and is seeking €1.3bn in pay cuts from public sector workers.
"The boom was a once-in-a-lifetime economic event," said Mr O'Sullivan, who plans to publish a second book next year. "If you step back and look at other economies where that has happened, it almost invariably gets out of control." (Bloomberg)
Irish Independent
