Fiscal issues as well as glasses should be raised at Paddy's Day knees-up
AMERICA: It wouldn’t hurt for Congress to consult the Irish on repairing a country’s finances
US president Barack Obama may have picked up the tab for his dinner party with Republican Senators on Wednesday night in a new charm offensive to win them over to his budgetary plans. But despite the calorie-heavy fare of crab risotto, beef and lobster thermidor, his rivals are still stuck on tightening federal belts.
As the St Patrick’s Day festivities and dinners approach, when Ireland has unprecedented access in Washington for one day of the year, the White House and Congress would be advised to consult the Irish on repairing a country’s finances, rather than simply raising glasses to the close bonds between the two countries.
The debate on how much you raise taxes or slash government spending in an effort to fix an economy was thrashed out in the corridors of Merrion Street long before it became a divisive topic on Capitol Hill.
Ireland, clearly, has nothing like the US’s monetary firepower to trade its way out of economic difficulty; the value of Irish economic output or GDP is roughly similar to that of the state of Wisconsin. It is also hard to imagine Europe’s central bank buying 90 per cent of all net new sovereign and mortgage-backed debt in a country that size, as the US Federal Reserve is doing in unprecedented stimulus for the US economy.
The Irish Government squeezed €27.5 billion of a fiscal adjustment out of the State between 2008 and 2012, a correction equal to 17 per cent of the State’s economic output or GDP. That’s pretty strong medicine, as Irish taxpayers well know.
If the same fiscal tonic Ireland took over the past five years were spooned out here – based on US GDP of roughly $15 trillion (€11 trillion) – the US deficit of $900 billion would become a surplus of more than $1.6 trillion. That’s plenty to keep the shipyards of Virginia full of new aircraft carriers and submarines for years to come.
But just look at the scrap between the Democratic White House and congressional Republicans over $85 billion (€65 billion) of ad-hoc spending cuts known as “the sequester” that Obama signed into effect on March 1st, blaming them on Congress for failing to budge from its “no tax increases” stand. Those cuts, albeit the start of $1.2 trillion over 10 years, amounted to less than one-tenth of the annual deficit.
That bitterly fought partisan episode shows the scale of the mountain to climb in the US’s fiscal crisis if government debts of $16.4 trillion are to be reduced. This may be why Obama has started schmoozing Republicans. If he has any chance of repairing the federal finances, he has to find compromise. So the way to a Republican’s mind may well be through his stomach.