Can Ireland just keep on borrowing to fight the Covid-19 recession?
Smart Money: Controversy rages over how far Ireland can go into deficit to protect the economy
The traditional Keynesian approach is that the government needs to step in to fill a significant part of the gap caused by a collapsing economy – such as the situation caused by Covid-19. Image: iStock
For now, the key player remains the ECB. Might it decide to pull back from the market at some stage? Photograph: EPA
The Minister for Finance, Paschal Donohoe gave said it is important that Ireland does not become an outlier in funding terms.
The Government finances have been turned on their head by Covid-19. An expected surplus of taxes over spending of around €2.8 billion for this year is now a deficit of €23 billion to €30 billion. And there are calls for the Government to borrow – and spend – even more to fight the economic fall-out from the pandemic. But when it comes to borrowing, how much is too much?
1. Where we stand
The Government’s spring economic update said that on a plausible scenario, the budget deficit could be €23 billion this year, or €28 billion to €29 billion in a more pessimistic scenario. Recent ministerial statements suggest that expectations for the deficit this year have risen to €30 billion, not far off 10 per cent of expected GDP.