Friday 24 March 2017

Budget cuts 'depend on solution to euro crisis'

ESRI chief tells Noonan to hold off on decision until December

Thomas Molloy

Thomas Molloy

EUROPE'S ability to solve the sovereign debt crisis should determine how much austerity Finance Minister Michael Noonan imposes on the population in his December Budget, the ESRI's John Fitzgerald told a Dail committee yesterday.

The comments were made as economists, trade unionists and business argue about the scale of spending cuts and tax hikes needed to ensure that we borrow no more than 8.6pc of gross domestic product. The Fiscal Advisory Council advised cuts and taxes worth €4.4bn, while employers' group IBEC and trade unions recommend cuts of €3.6bn.

"I would delay making that decision," Prof Fitzgerald told an Oireachtas Committee on public reform. "My feeling is wait until December."

Failure to resolve the sovereign debt crisis would leave Europe in real trouble, he warned. "There is no future for Europe until it sorts out its problems."

The biggest risks to the Irish economy are now outside Ireland and the economist said he was worried about the effect of Europe's sagging economy on Irish growth prospects next year.

"I am nervous about what is happening in the rest of Europe. The (export) market could be very different next year."

He blamed European leaders for the problem, saying they should have acted 18 months ago.

Prof Fitzgerald rejected suggestions that Ireland should follow in the footsteps of Greece and seek to write off half of our debts.

"Default is exceptionally painful," he told People Before Profit TD Richard Boyd Barrett. A default along the lines predicted for Greece would lead to a "decade of pain", he cautioned.

The Irish economy has performed better than forecast in recent months, he added.

"Everything that has happened in the last nine months suggests things are slightly better than expected, but the economy won't pick up until the consumer begins spending again. The problem is that we are all depressed."

Mortgage

While agreeing that many people in their 30s were burdened with high mortgages, he noted that most people did not have a mortgage and would resume spending again. The problem was predicting when spending would start.

"At some stage, people will wake up and say, 'Oh, I have all this money'," he predicted. The difficulty for economists was that they were dealing with human behaviour. "People learn, so their behaviours won't be the same as before."

Looking at the future, Prof Fitzgerald said the Government's objective should be to ensure growth and sell the banks. The banks appeared as liabilities but they could generate significant cash if sold, he added.

"We put €30bn into the solvent banks. If we can get that back, that money transforms the debt situation."

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