Belfast Telegraph

View from Dublin: Debt and deficits diverge as financial Brexit looms

By Brendan Keenan

As the old saying goes, there is more than one way to kill a cat, and choking it with cream, while apparently kinder, may not be the most effective.

Some unlikely support for this adage comes in an analysis of the public finances by the Fiscal Advisory Council (IFAC). Every country had to deal with the fat-tailed cat that was the Great Recession, but everyone had a different animal and ways of dispatching it differed greatly too.

The international comparisons in the report have particularly telling data on employment. Nobody took a worse mauling in the crash than Ireland, with a 15% reduction in jobs. Employment fell just as fast in the USA, but for a much shorter period, for a loss of 5% but there was very little loss in the UK.

American jobs began to grow as early as 2010 and were almost 5% above their pre-crash peaks at the start of this year. Britain's employment numbers rose from that period as well and the limited impact from the crash has left them more than 5% higher than in 2007.

In Ireland's case, the damage from the crash delayed recovery until 2013. It has been faster than in the two bigger economies, with a 10% gain since then. However, it is only now that we are approaching the previous peak, while the others are above it.

In Ireland, one should not really compare current conditions with 2007.

British policy was pretty loose before the crash, if not on an Irish scale, but the big difference has been since then. Ireland had the full eurozone austerity treatment, with a double helping when the rescue of the banks is included.

Britain's banks cost proportionately less and the public finance programme has been, if not actual reflation, then certainly, by the standards of eurozone bailouts, austerity-lite.

The main difficulty with that approach is that, while it may seem easier, it goes on for longer. If things don't pick up in an economy, it can go on for a very long time indeed. As it has in the UK, with an expected budget deficit of 3.3% of GDP this year.

This is another side of Brexit. Britain's public finances increasingly diverge from those of the euro area, where the overall gap between government revenues and government spending is just 1.3% of GDP.

That of course hides a multitude of difference between countries but, among the larger ones Spain has a deficit of more than 3%. France however is close, according to the data compiled by The Economist, with a deficit of just under 3%.

Belfast Telegraph

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