Ireland plans 12.4 billion euros ($17.1 billion) of austerity measures over the next four years as it pushes on with a fiscal program to reduce the deficit and insulate it from the crisis in Greece.
There is “no easy path forward,” Finance Minister Michael Noonan said in Dublin today as he published the government’s Medium-Term Fiscal Statement. He is planning a 3.8 billion-euro adjustment in 2012 after a 6 billion-euro budget in 2011. The government also cut its 2012 growth forecast to 1.6 percent from 2.5 percent.
Ireland is trying to distance itself from the turmoil that has pushed Greece’s government close to collapse and threatened the future of the euro area. With Irish Prime Minister Enda Kenny relying on exports to boost the economy as the fiscal squeeze takes hold, Goldman Sachs Group Inc. said this week the recovery is now “jeopardized by the global slowdown.”
“It is the same old story with Ireland in our view -- doing good work and will continue to do so,” Brian Devine, economist at NCB Stockbrokers in Dublin said. “But the country is still extremely vulnerable given the level of the deficit.”
The coming adjustments amount to about 8 percent of the economy, and follow spending cuts and tax rises of more than 20 billion euros since the economy began to falter in 2008.
Ireland received a bailout last year to help it keep its banking system from collapsing. The yield on Irish two-year notes climbed above 9 percent this month as the Greek debt crisis roiled global markets. The yield, which reached a record 23.2 percent in July, fell to a six-month low of 6.75 percent last month as the government negotiated a cut in the interest rate in its bailout loans.
The planned adjustment for 2012 is larger than the 3.6 billion euros the government signaled earlier this year. It said the larger figure is “necessary to ensure compliance with the agreed deficit target.”
Slowing global economic growth will complicate Ireland’s efforts to cut debt. While the government is adamant that it won’t seek Greek-style write-offs of its debt, Noonan said he may look for European money to help refinance taxpayer injections into Anglo Irish Bank Corp.
Noonan said today other options to cut debt also exist, including Europe taking an equity stake in Allied Irish Banks Plc, which has cost the taxpayer about 20 billion euros to save.
European Central Bank President Mario Draghi said that Greece and Ireland are not in the same position, noting that the former is “exceptional and unique.”
The government also cut its 2013 economic growth forecast to 2.4 percent, and Noonan said the projections “illustrate the scale of the challenge that the government faces.” The euro-area economy is also struggling, and Draghi said yesterday the region is heading toward a “mild recession.” The Organization for Economic Cooperation and Development cut its 2011 and 2012 growth forecasts for the U.S. and the euro area last month, and projects the latter will grow just 0.3 percent next year.
The Irish economy will expand an average of 2.8 percent in the period between 2013 and 2015, the government said, reducing an earlier forecast of 3 percent. Noonan aims to reduce the budget deficit to below the European Union limit of 3 percent of output in 2015 from a projected 8.6 percent in 2012.
“The key issue is growth in the global economy rather than the momentum of the Irish economy,” said Austin Hughes, chief economist at KBC Ireland in Dublin. “Budgets that don’t kill the economy may deliver a quicker path to a 3 percent deficit.”