WSJ - Ireland's economy slid into crisis in 2008 when the bursting of its property
bubble wrecked the country's banks and brought the euro-zone member close to
bankruptcy. In late 2010, the government secured €67.5 billion ($91.54 billion)
in loans from the EU and IMF, the last of which will be disbursed over the next
two months. From next year, the government will have to finance itself
exclusively through the bond markets. Finance Minister Michael Noonan told lawmakers that the budget will introduce
up to €2.5 billion in new tax increases and spending cuts, saying that Ireland
will better the deficit target for 2014 that was set under its bailout
agreement. The proposed cuts are the smallest since 2008. Under the budget, the deficit is planned to fall to 4.8% of gross domestic
product in 2014 from 7.3% this year. The government is committed to reducing its
deficit to below 3% of GDP in 2015. Required to keep cutting its deficit over the next two years, Ireland's
government will then be obliged to endure a tight regime of fiscal oversight for
many more years to cut its towering national debt. Despite those constraints, Mr. Noonan told lawmakers that in ending its
dependence on EU and IMF loans, the nation would regain control over its own
destiny.
"We have a fair wind at our backs to achieve our objectives and to restore
our sovereignty," he said.
After the long years of sacrifice, the government is seeking to shore up
faltering public support for austerity, describing its 2014 budget as one of the
last of the big painful efforts to move the country out of crisis and into
recovery. The leaders of the two parties in the coalition government have said
there is now clear evidence that the country is emerging from its "national
emergency."
There is much at stake for the euro zone, which has also provided bailouts to
Greece, Portugal, Cyprus and Spain. A successful return to the bond markets for
Ireland would offer euro-zone policy makers a rare opportunity to claim a
success for their much-criticized strategy for confronting the currency area's
fiscal and banking crisis, one that has relied heavily on austerity.
Mr. Noonan said that for the first time since the onset of the financial
crisis, the government will post a primary budget surplus next year. That would
mean that excluding interest payments, its tax revenues would exceed its
spending, helping to cap its huge debts.
Tuesday's budget means that since 2008, Ireland has detailed cuts to its
budget totaling a cumulative €30 billion, representing about 18.5% of the
country's annual economic output and making it one of the largest austerity
programs undertaken anywhere in the aftermath of the financial crisis.
The EU and IMF and other institutions, such as the Irish Fiscal Advisory
Council and the Irish central bank, had urged the government to go further and
meet in full a proposed €3.1 billion in deficit cuts, to safeguard its finances.
But the coalition projects that it will still meet its bailout budget targets in
2014 and 2015, and help promote jobs.
