Tuesday, 1 December 2009

The "Feck the French" strategy

Ireland has a problem. It is at risk of getting into some terrible debt.

Its fiscal deficit has soared this year to about 14% of GDP, more than almost any other country, and on current path its debt is forecast to reach 126% of GDP by 2016.

This is mainly due to a collapse of over a tenth in Irish GDP during the recession - which, under the informal definition, qualifies as a full depression in Ireland. What is to be done?

The government is willing to take fairly drastic steps to cut its deficit, even though the economic recovery is still tentative (as a very export-oriented economy, Ireland can afford countercyclical fiscal policy better than most nations). But can the government carry its citizens with it?

An Economist article last week offers a clue.

Take a look at the chart at the top of the article. Ireland's figures look bad, but it has an advantage: it starts from a reasonable public debt position. On this projection, in 2011 Irish public debt will be 96% of GDP while other countries - let's say, for example, France - will have high debt too, with lower deficits but from a higher starting point.

Ireland wants to cut another 4 billion euros from its budget, and is likely to require public sector wage cuts to achieve it. No government can easily cut the wages of its civil service without inflation or a major public emergency - and Ireland, tied to the euro and (relatively) at peace, can't easily achieve either.

So what stirring message - assuming he doesn't declare war on the Isle of Man - could Brian Cowen broadcast to create that shared public spirit of self-sacrifice? Circumstance provides an answer.

The tactic? A joint national project to keep Ireland's national debt below the level of France's - subjecting France to the ignominy of lining up as top euro-area debtors with Greece, Italy and Portugal, three other countries rather better at winning football matches than running their economies. Just the thing.

It's called the "Feck the French" strategy and I suspect the Irish people would be only too happy to participate. They might even get a sympathy interest rate cut from the ECB.

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