the global investor
Ireland Railing Against deficit and job losses
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reland fought hard to control its towering debt load after the financial crisis. But now coronavirus has plunged its finances back into deficit and pushed swaths of people out of work, sparking fierce political debate about what spending to cut and how large any reductions should be. The economic consequences of the pandemic are set to push Ireland into its worst-ever recession, with gross domestic product forecast to fall 12.4 per cent this year and possibly as much as 17 per cent according to the Economic & Social Research Institute think-tank in Dublin. It is a sharp turnround for a country that had rebounded from an international bailout and a €29.8bn austerity drive to achieve full employment
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and a budget surplus before Covid19 struck. “The scale of the shock that we have faced is completely unprecedented and without equivalent in modern economic times,” said Conor O’Toole, senior researcher at the ESRI. The challenge is a central focus for the country’s political leaders, who are attempting to form a coalition government in difficult, slow-moving talks which could lead to a deal by mid-June. At issue in the talks is a deficit-reduction plan to kick in from 2022 or 2023 after a stimulus package, although it remains unclear whether there will be specific dated targets.
Economists say the country should aim to turn the corner within two to three years, which will need a big stimulus plan. They also warn that Dublin will have to cut spending or raise taxes once growth is restored, in a bid yet again to tackle the national debt. “The next government will need to make some important and difficult decisions about its competing spending and tax objectives,” said Sebastian Barnes, acting chairman of the Irish Fiscal Advisory Council, a statutory budget oversight body.
He estimated that a sum “of the order” of €10bn in stimulus could One person close to the talks said be needed over a two-year period the deficit question was a “key area to help restore the economy to of sensitivity” in the negotiation. growth, but warned that after that,
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