Debt crisis less severe, says ESRI
THE ESRI has reiterated its belief that Ireland’s public debt crisis will be less severe than previously expected.
Addressing the joint Oireachtas committee on finance, public expenditure and reform yesterday, Prof John FitzGerald, said that, as outlined in ESRI research published last month, Ireland’s primary balance will move into surplus in 2014.
“Everything that has happened in the last nine months has suggested that things are performing slightly better than we thought, not worse”, although he noted the continuing uncertainty in Europe. “The biggest risks are now outside Ireland.”
Noting that the banks had moved from being a liability to an asset on Ireland’s balance sheet, Prof FitzGerald said the Government would sell them in time to get a return for the exchequer.
“The banks are now our biggest assets,” he said. “Getting our money back from the banks is key to debt sustainability in the long term.”
Responding to questions on household indebtedness, Prof FitzGerald said that while about 20 per cent of households were badly impacted, 80 per cent were in a better position. In particular, he highlighted a cohort of individuals in the 30 to 35 age bracket with “large financial assets and no houses”.
“At some point they will go out and spend, though we don’t know the timing of this,” he said.
He also stressed the importance of exports for economic growth, noting the strong performance of the manufacturing sector and an increase in exports from small to medium-sized businesses.
“A cut in expenditure in Ireland has less of an impact than it does in larger economies. While people spend less, a lot of what they spend less on is imports.”
Asked by a number of Oireachtas members whether there should be a greater emphasis on stimulus rather than austerity in terms of economic policy, he said using State money to invest in the economy “is a very expensive way to create jobs”.
He also warned of the danger of destabilising the economy and leading the country into greater austerity. “Austerity over a much longer period is a bad idea,” he said.
Prof FitzGerald said the current climate meant there was more pressure to get a higher rate of return from any State investment, something that will be more difficult as interest rates rise.