Thursday 23 March 2017

Ireland is facing 'a lost decade' due to private debt

Peter Flanagan

Peter Flanagan

THE Government is too focused on the question of public debt when it needs to concentrate on private indebtedness, according to a leading economist.

Speaking at an economics conference in Trinity College last night, Goodbody Stockbrokers chief economist Dermot O'Leary said the question of private debt had largely been put on the back burner until now, broadly because of the policies of the EU and ECB.

"Irish household debt is about 200pc of disposable income and, at that level, it could take between five and seven years to get that back down to 'normal' levels," he said.

"There has to be more focus on this issue because, as things stand, it will affect our ability to reach our growth targets," he added.

Mr O'Leary went on to say that while his analysis largely reflected the stance of the International Monetary Fund, the European Union and European Central Bank have both focused entirely on public debt.

Rhetoric

"If you listen to the comments over the last number of months from the likes of German finance minister Wolfgang Schaeuble, the rhetoric has always been about public indebtedness.

"That appears to reflect the risk the ECB has taken on by buying Irish bonds because the quicker they are repaid the lower its own risk," he said.

"The focus on debt at the expense of austerity has only begun to change because recession is now at the doorstep of France and Germany."

Despite differing opinions among economists, Japan's "lost decade" is an appropriate comparison for Ireland, Mr O'Leary concluded.

"Japan is a good precedent for Ireland because of the scale of the crash that happened there.

"In Japan, the commercial property market fell by 87pc. Here, the crash has been in housing and that has helped wipe out €250bn of private wealth in Ireland.

"The big difference between Ireland and Japan, though, is that Japanese GDP kept growing because the government was able to run deficits to promote growth. Obviously, we can't do that.

"Japan really didn't have a lost decade, Ireland will."

Irish Independent

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