“priority for countries like Ireland with relatively high deficits..”

Yesterday the US Federal Reserve announced an additional $800billion stimulus package while today the People’s Bank of China are reported to have lowered interest rates by 1.08 percentage points [after three separate drops of 0.27% since Sept 16] and according to the International Herald Tribune report – “The European Commission on Wednesday outlined a €200 billion wish list of measures for Europe to spend its way out of recession, and gave national capitals permission to temporarily break budget deficit ceilings if needed.” The report also notes the criticism that the EC “have avoided telling specific countries what to do.” A point explored in this BBC report while the Wall Street Journal is scathing – “Prepare for a damp squib — albeit an expensive one.” Apparently Ireland is still banking on the patriotic shopper.. for now.. From the RTÉ report.

The Government has welcomed the Brussels plan, but the Department of Finance has signalled that Ireland has no room for a further fiscal stimulus at this stage. The Department said the National Development Plan and relatively low tax rates are in line with the EU’s package. It said the priority for countries like Ireland with relatively high deficits is to get the public finances back in order. It said those steps had been acknowledged by the European Commission’s recovery plan.

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  • George

    The UK will have a budget deficit of up to 8% next year because of its fiscal stimulus plan, pretty much the same as the Irish Republic as a result of its tax increases so the Department of Finance would be bang on the money to say that there is no room for a financial stimulus.

  • Pete Baker

    Except that the UK is not in the Euro zone, George.

    And that’s the apparent limiting factor on Ireland increasing its deficit further.

    So it’s a false comparison.

    And, according to the reports, temporary breaches of budget deficit ceilings are now acceptable to the EC.

    Whether the Department of Finance is “bang on the money to say that there is no room for a financial stimulus” is irrelevant in those circumstances.

    The question is whether Ireland anticipates their breach being temporary if they avail of the new stimulus package.

    The evidence suggests not.

  • Dave

    Ireland already has a fiscal stimulus plan called the National Development Plan, so once again the EU fails with its it’s one-size-fits-all mentality/policies.

    In times of crisis (created by the EU’s failed ECB monetary policies), the EU encourages its member states to spend their way out of the recession that it encouraged them to spend their way into. In short, if spending too much borrowed money has created a looming recession, the solution is to stop spending borrowed money borrow more money and spend it – only this time transfer the borrowing from the private sector to the public sector! Genius.

  • Mack

    Dave – surely this is an example of something that is exactly NOT one size fits all?

    More prudent EU countries that didn’t borrow themselves into a whole, are taking the opportunity to stimulate their economies.

    Correctly, I believe, we’re working off our own balance sheet excesses. It’s a pity our government didn’t have this new found prudence throughout the millennium, or we mightn’t be this mess of our own creation.

  • George

    Pete,
    I was pointing out how far the pro-Keynes people seem to think a developed economy can probably stretch a GDP deficit, inside or outside the eurozone. Our nearest neighbour was a good example. Born again Keynsian Brown feels even without any ECB restrictions that 8% is as far as is prudent (not making a value judgment on whether this policy is right or not).

    As Ireland has already stretched its deficit to the limit, needing tax increases to get within the 8% window, there is no room for a financial stimulus, especially as it most certainly would not be temporary if it went any higher.

    There are serious doubts as to whether the current budget deficit will be temporary as it is.