Why emulating Ireland means entering the “financial danger zone”

George Osborne said the Coalition had moved Britain out of the "financial danger zone". But the Irish experience shows that the planned cuts will make matters worse.

George Osborne told the Today programme that the Coalition had moved Britain out of the “financial danger zone” and contrasted the UK’s economic performance with that of Ireland. As Mr Osborne prepares to make £83 billion of spending cuts in two weeks time, the truth is that Ireland tried exactly the same approach with dire consequences.

Ireland’s 2009 supplementary budget set out a package of spending reductions and tax cuts worth €3.25 billion. Measures included reducing jobseekers allowance, cuts to childcare allowances, and reductions in spending on the voluntary and charitable sector. The package aimed to reduce the Government deficit to 3% of GDP by 2013. Mr Osborne plans to reduce public sector net borrowing from 11% last year to 3.5% in 2013-14, a similar pace to the Irish experience.

But as the Table below from the 2010 Budget shows, the current forecast of the Irish deficit exceeds the previous forecast in every year. The cuts didn’t work and the Irish government were forced to announce further measures in the 2010 Budget including pay cuts for public sector workers and cuts to social welfare programmes.

Last week, Ireland announced a massive bank bailout package. In his statement, Minister of Finance Brian Lenihan said:

“There will be a very substantial spike in Ireland’s General Government Deficit in 2010 as a result of the capital support that we are providing to our banking system, totalling almost 20% of GDP. On a purely headline basis our General Government Deficit for 2010 will be around 32% of GDP.

“Were it not for this once off spike we would have broadly met our budget target for 2010. I want to stress today to all, including our European partners, that Ireland remains fully committed to reducing our deficit below 3% of GDP by 2014 as agreed.

The phrase “broadly met” is telling since it implies a deficit of 12% excluding the bank bailout. This is above the current projection for 2010 and over 1% higher than the earlier pre-cuts projection.

In 2009, Mr Lenihan called his measures, “decisive actions to put this economy on the road to renewal and demonstrate that we have the ability to make the right choices for everyone in this country.” Sound familiar?

10 Responses to “Why emulating Ireland means entering the “financial danger zone””

  1. George Woods

    RT @leftfootfwd: Why emulating Ireland means entering the "financial danger zone" //bit.ly/a8x8nA

  2. Anon E Mouse

    Will Straw – You know full well the Celtic Tiger was made of paper – the comparison is not a good one.

    But consider this. What happens if the coalition government is right and the gamble is one worth taking and pays off?

    Where will that leave the Labour Party which is currently, as David Starkey describes it, the party of public service.

  3. Red Ed

    The short term pain of economic collapse will allow the unions to take back control of our country. Bring it on.

  4. Ravinder

    Are you not confusing the analysis? Ireland is a very different economy with a massive property bubble that collapsed and the cuts there have been much larger on a comparable basis.

    Britain may be fragile but it’s just not in the same league, plus it has its own currency/monetary policy. By all means attack the potential for spending cuts to harm the economy but the example of Ireland risks confusing the message.

  5. What a difference a year makes | Left Foot Forward

    […] Aping Nick Clegg’s conference speech, George Osborne equated the structural deficit to a “credit card bill” despite the metaphor being referred to as “simplistic nonsense“, “totally misleading“, and a “disreputable old populist fallacy”. He failed to address the risk of Britain mirroring Ireland’s cuts experience. […]

  6. Michael Burke

    “The cuts didn’t work and the Irish government were forced to announce further measures in the 2010 Budget including pay cuts for public sector workers and cuts to social welfare programmes.”

    From their perspective ‘forced’- although repeating an experiment and expecting a different outcome is madness.

    //www.guardian.co.uk/commentisfree/2010/sep/24/recession-ireland-spain-recovery

    And the complaint that Britain isn’t the same as Ireland is true- but this is only relevant to the specific composition of the recession and any recovery- not the role of government spending in general.

    Supporters of cuts should spell why they will have the opposite effect here, closing the deficit rather than widening it

  7. Mersey Paradise

    If there is no comparison with Ireland then why is the collapse of the property market in Spain constantly rolled out by Osbourne and Co as the defining argument in the debate over cuts? Greece then Spain then us was the apparent catalyst for Nick Cable’s sudden conversion from approximately Gordon Brown’s position pre-election to deficit hawk fetishist not long after.

    There are some cmparisons with Ireland though. We too have a fairly skeletal framework for growth and a financial establishment that has been allowed to monopolise a stranglehold on the economy that has been very detrimental for our future equilibrium. Also, whilst the economic comparisons may not be directly applicable, it does yet again prove how deluded this yearning for pain for pain’s sake. No pain, no gain may be a relevant slogan when pumping iron in the gym but in reality the oversimplication of the economic debate has starved the British public from alternative arguments and created the illusion that these cuts ‘have’ to be done if there is to be investment in the future. What isn’t stated often enough is the just how much this chainsaw massacre bloodlust will actually make things worse. And on top of taking years of productive skills and expertise out of employment as have seen throughout the course of history, you cannot have future growth without investing in it.

    But the truth is Canada was a far more disingenuous comparison used by the coalition. Lifted by the economic goliath of a resurgent and booming U.S economy and rich with natural resources there’s no doubt that Canada would have been lifted out of recession whether there was fierce cuts or not.

  8. Mr. Sensible

    What has happened in Ireland is another reminder of why these cuts aren’t just bad for our services; they are bad for our economy.

  9. Cameron cuts back on truth | Left Foot Forward

    […] said that Britain is nothing like Greece. But if we cut too soon we could end up like Ireland who despite attempts to rapidly reduce their deficit have ended up with the deficit […]

  10. Why do the right continue to support Ireland's disastrous economic policies? | Left Foot Forward

    […] This is despite the economic disaster that has been unfolding in Ireland over the past two years. In 2008 Lenihan decided against a fiscal stimulus and instead tried to balance the budget through spending cuts and tax rises. This strategy has proved self defeating as the welfare bill (despite cuts) continues to rise and tax revenues continue to underperform. […]

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