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Ben Chu: Will Irish eyes be smiling?

Posted by Eagle Eye
  • Wednesday, 26 May 2010 at 03:02 pm

Two sharply contrasting views on Ireland's economic future from two of its top economists quoted in an excellent Guardian feature today.

John FitzGerald, an economist at the Economic and Social Research Institute, "forecasts annual growth zooming up to as much as 5% between 2012 and 2015, before falling back to what he calls 'boring, European' levels". FitzGerald also argues that "leaving the euro would be lunatic".

David McWilliams, a former Irish Central Bank economist and someone who warned that the Celtic Tiger's bust was looming, regards all that as "horseshit", and laments the fact that "the establishment view is that we need more of the same".

Well, they can't both be right.

Watch this one closely. Ireland was the poster child for the neo-liberal right in the boom years with its weak regulation of finance and its ultra-low corporate tax rates. It's been the poster child for the right in the bust too, with Dublin's savage and early fiscal retrenchment. The right desperately need Ireland to bounce back quickly to validate their initial economic prescriptions for growth and also to support their arguments about the virtues of slashing public spending in the teeth of a recession.

Incidentally, Simon Johnson, of the Baseline Scenario, has a good analysis here showing why Ireland's status as a tax haven puts its public finances in an even worse state now.

"Roughly 20 percent of Irish gross domestic product (G.D.P.) is actually 'profit transfers' that raise little tax for Ireland and are owned by foreign companies. Since most of these profits are subject to the tax code, they are accounted for in Ireland where they are lightly taxed; they should not be counted as part of Ireland’s potential tax base. A more robust cross-country comparison would be to examine Ireland’s financial condition ignoring these transfers. This is easy to do: a nation’s gross national product excludes the profits of foreign residents. For most nations, gross national product and G.D.P. are near-identical, but in Ireland they are not. When we adjust Ireland’s figures accordingly, the situation is dire. The budget deficit was about 17.9 percent of G.N.P. in 2009"


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