Alan Ahearne, NUI Galway

NUI Galway


"The public finances are in crisis. The budget figures looked utterly optimistic and our borrowing next year is going to be closer to €20 billion rather than €13 billion. The broader economic environment, domestically and especially globally, has deteriorated in the past six weeks. The global economic picture looks horrible.


"The government can't go for big tax hikes next year and, in terms of cuts, a couple of billion euro might be appropriate. But it can't do more than that. The economy is too vulnerable. If the economy improves, then consolidation in the public finances can take hold in 2010 or 2011. The government can't run deficits of 10% for many years because it creates an elevated risk of insolvency. It can get away with it for a year or two but after that you're talking about a lot of debt.


"Can the recession become a depression? We certainly have an extremely deep recession. In the great depression of the 1930s, you had unemployment of 20%- 25%, allied to deflation, where prices were coming down, and bankruptcy of financial companies – banks and non-banks. Policy-makers today are trying to make sure that this doesn't happen again. So much ammunition is being used that it makes a depression unlikely, but it is a plausible outcome. The risks are high enough to merit this emergency reaction.


"We cannot and should not think of a fiscal stimulation package in Ireland. We are a very open economy. So if you have a cut in VAT, for example, even if it prompted an increase in spending, it would be spending on imported goods. The bang for your buck would be very small. For a fiscal stimulus to matter, it would have to be huge – about 5% of GDP. That would push borrowing up to 15% of GDP for 2009 and then you're in the area of out-of-control deficits.


"It's very hard to know what unemployment will peak at. The outlook is very uncertain. It will certainly be above 10%. A rate of 15% by the time the recession is finished is possible. The likely range is between 10% and 15%. If it's a very bad outcome, the rate could be heading towards 15%. It's not the most likely outcome, but it's plausible. And you won't see a rapid fall either. We're into a very prolonged period of high unemployment.


"It's clear the government mismanaged the boom. They're getting a lot of criticism for mismanaging the bust, but it's more of a case of them mismanaging the boom. It's not that we can take a few measures to make the pain go away. However, it would be useful for the government to set out a credible plan for the next five years as to how it will get the public finances under control, so at least people can see the end game. It would also be useful for the global markets. They are very uncertain about Ireland's prospects and we need to borrow a lot of money from them."