- The much trumpetted and imminent 4 year fiscal plan is the initiative of the current coalition government to somehow rescue the economy, and
- Ireland has been and will continue to lead the way on fiscal austerity programs, in particular putting Greece in the shade.
Yesterday there was a pow wow between the most important political parties in the Dail (plus the Green Party) to discuss an advance copy of a much trumpetted 4 year plan. The claim made by the government of the day is that this is of national importance and that some form of cross party consensus is needed on its content. I won't comment on that (it is complete political bollocks), but just note that the requirement for this medium term fiscal plan is enshrined in the Maastricht Treaty under Stability and Growth Pact. Ireland, like Greece needs to submit for approval by the European Commission a "Stability Program" that explains how the general government deficit will be trimmed to less than 3% of GDP by 2014.
Point 1. This is a legal requirement, not some admirable piece of national governance.
Next to how we mighty Irish are showing up those lazy Greeks. The general government deficit in 2009 was estimated at 11.7% of GDP (output), or in my preferred numeraire for Ireland 14.2% of GNP (income) - it makes a difference, doesn't it. For Greece the number was 13.8% of GDP and essentially the same as a proportion of GNP.
The first myth running around Ireland and sold to the rest of the world (as only the Irish can) was that Ireland had already introduced the most massive fiscal adjustments, while the Greek government had been sitting on its lazy bum.
Exhibit 1. - Comparable primary deficits
Source: European Commission, Greek Ministry of Finance
The primary deficit excludes debt interest, so it is a measure of budget items under the direct control of government. Well, knock me down with a smoked kipper. It looks like those lazy, profligate Greeks have been significantly more masochistic than our own bunch assorted teachers and country solicitors.
Hopefully more people will note this and not wonder why the streets of Athens were turned into a type of European Beirut, while the Irish electorate were characterised by the local media as being "docile in the face of much more draconian fiscal measure". Let's agree right here and right now that this type of statement was and still is a bare faced lie. Regardless of the economic merits of such a fiscal contraction being implemented by Greece, there is no case that Ireland was making more significant budget adjustments. I know that a new raft of expenditure cuts and tax increases are about to be announced in Ireland, but even €5 billion in measures will amount to about 4% of GNP would only, at best, represent catch up with the measures already being implemented in Greece.
Of course these are primary deficits and they do not include interest on the stock of government debt. In the case of Greece , such interest costs amount to more than 7% of GNP and mean that they won't have completed the necessary fiscal adjustment until the primary balance is in significant surplus (that 7% of GNP deficit including debt interest would keep Greece on debt death spiral). However, that is irrelevant to the point being addressed here. The Greek government has been far more courageous (or stupid, depending on your point of view) than the Irish government to date.