Ireland faces another difficult budget in
the next week or so. Irish people
have seen the value of their assets fall, and most of them have seen a fall in
their incomes through a combination of
wage reductions and tax increases.
But it is important to keep “austerity” in proportion
- Real GNP is back now to the level it was at in 2004, but it is still 60% higher than it was in 1997 (in 2007 it was 90% higher than it was in 1997)
- Household net worth (which takes account of borrowings) is back to the level it was in 2003
- Consumer spending in the first quarter of 2012 was back to the level it was in 2006, but is still 80% higher than it was in 1997 (Admittedly there are more people in the country than there were in 1997, do consumer spending per person is not 80% up on 1997)
- Ireland has regained competitiveness. Its real exchange rate vis a vis the rest of the euro zone has recovered from the worst excesses of the bubble economy and is now back to the level t was at in 2000, but Ireland is still a good deal less competitive than it was in 1997.
So, overall, the spending power of
Irish people is still there, but
it is differently distributed than it was at the height of the boom, and than
it was back in 1997, when the country had a solidly based economy,
that had not been pumped up
artificially by borrowing. Some of the changes that will be made in the
budget will be ones that we would
have had to make anyway, evn if our creditors were not demanding them, because
of the eventual ageing of our society and the extra costs that
will bring.
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