A talk given at the School for Oriental and African Studies on November 22nd.

1. IS IRELAND REALLY THE ROLE
MODEL FOR AUSTERITY?
Stephen Kinsella
University of Limerick

2. “GREECE HAS A
ROLE MODEL. AND
THAT ROLE
MODEL IS
IRELAND.”

3. 3 IDEAS.
1. What happened? 2. What are we going to do about it? 3. Is
austerity the right way to go?

4. ROMANTIC IRELAND’S DEAD
AND GONE

5. Year/%Chg 2006 2007 2008 2009 2010 2011f 2012f
Personal
6.8 6.5 -1.1 -6.9 -0.8 -2.4 -0.4
Consumption
Government
4.9 6.6 0.5 -4.5 -3.8 -3.6 -1.9
Consumption
Investment 4.5 2.3 -10.2 -28.7 -24.9 -10.7 -1.3
Exports 5.0 8.4 -1.1 -4.2 6.3 6.0 5.2
Imports 6.9 7.9 -3.0 -9.3 2.7 3.0 4.0
GDP 5.3 5.2 -3.0 -7.0 -0.4 1.1 2.8
GNP 6.3 3.9 -2.8 -9.8 0.3 0.8 0.9
Source: Irish Department of Finance and IMF Country Report for Ireland No. 11/276 and IMF Fiscal
Monitor September 2011

6. Year/%Chg 2006 2007 2008 2009 2010 2011f 2012f
Personal
6.8 6.5 -1.1 -6.9 -0.8 -2.4 -0.4
Consumption
Government
4.9 6.6 0.5 -4.5 -3.8 -3.6 -1.9
Consumption
Investment 4.5 2.3 -10.2 -28.7 -24.9 -10.7 -1.3
Exports 5.0 8.4 -1.1 -4.2 6.3 6.0 5.2
Imports 6.9 7.9 -3.0 -9.3 2.7 3.0 4.0
GDP 5.3 5.2 -3.0 -7.0 -0.4 1.1 2.8
GNP 6.3 3.9 -2.8 -9.8 0.3 0.8 0.9
Source: Irish Department of Finance and IMF Country Report for Ireland No. 11/276 and IMF Fiscal
Monitor September 2011

7. Year/%Chg 2006 2007 2008 2009 2010 2011f 2012f
Personal
6.8 6.5 -1.1 -6.9 -0.8 -2.4 -0.4
Consumption
Government
4.9 6.6 0.5 -4.5 -3.8 -3.6 -1.9
Consumption
Investment 4.5 2.3 -10.2 -28.7 -24.9 -10.7 -1.3
Exports 5.0 8.4 -1.1 -4.2 6.3 6.0 5.2
Imports 6.9 7.9 -3.0 -9.3 2.7 3.0 4.0
GDP 5.3 5.2 -3.0 -7.0 -0.4 1.1 2.8
GNP 6.3 3.9 -2.8 -9.8 0.3 0.8 0.9
Source: Irish Department of Finance and IMF Country Report for Ireland No. 11/276 and IMF Fiscal
Monitor September 2011

8. Year/%Chg 2006 2007 2008 2009 2010 2011f 2012f
Personal
6.8 6.5 -1.1 -6.9 -0.8 -2.4 -0.4
Consumption
Government
4.9 6.6 0.5 -4.5 -3.8 -3.6 -1.9
Consumption
Investment 4.5 2.3 -10.2 -28.7 -24.9 -10.7 -1.3
Exports 5.0 8.4 -1.1 -4.2 6.3 6.0 5.2
Imports 6.9 7.9 -3.0 -9.3 2.7 3.0 4.0
GDP 5.3 5.2 -3.0 -7.0 -0.4 1.1 2.8
GNP 6.3 3.9 -2.8 -9.8 0.3 0.8 0.9
Source: Irish Department of Finance and IMF Country Report for Ireland No. 11/276 and IMF Fiscal
Monitor September 2011

9. Year/%Chg 2006 2007 2008 2009 2010 2011f 2012f
Personal
6.8 6.5 -1.1 -6.9 -0.8 -2.4 -0.4
Consumption
Government
4.9 6.6 0.5 -4.5 -3.8 -3.6 -1.9
Consumption
Investment 4.5 2.3 -10.2 -28.7 -24.9 -10.7 -1.3
Exports 5.0 8.4 -1.1 -4.2 6.3 6.0 5.2
Imports 6.9 7.9 -3.0 -9.3 2.7 3.0 4.0
GDP 5.3 5.2 -3.0 -7.0 -0.4 1.1 2.8
GNP 6.3 3.9 -2.8 -9.8 0.3 0.8 0.9
Source: Irish Department of Finance and IMF Country Report for Ireland No. 11/276 and IMF Fiscal
Monitor September 2011

10. Year/%Chg 2006 2007 2008 2009 2010 2011f 2012f
Personal
6.8 6.5 -1.1 -6.9 -0.8 -2.4 -0.4
Consumption
Government
4.9 6.6 0.5 -4.5 -3.8 -3.6 -1.9
Consumption
Investment 4.5 2.3 -10.2 -28.7 -24.9 -10.7 -1.3
Exports 5.0 8.4 -1.1 -4.2 6.3 6.0 5.2
Imports 6.9 7.9 -3.0 -9.3 2.7 3.0 4.0
GDP 5.3 5.2 -3.0 -7.0 -0.4 1.1 2.8
GNP 6.3 3.9 -2.8 -9.8 0.3 0.8 0.9
Source: Irish Department of Finance and IMF Country Report for Ireland No. 11/276 and IMF Fiscal
Monitor September 2011

11. Year/%Chg 2006 2007 2008 2009 2010 2011f 2012f
Personal
6.8 6.5 -1.1 -6.9 -0.8 -2.4 -0.4
Consumption
Government
4.9 6.6 0.5 -4.5 -3.8 -3.6 -1.9
Consumption
Investment 4.5 2.3 -10.2 -28.7 -24.9 -10.7 -1.3
Exports 5.0 8.4 -1.1 -4.2 6.3 6.0 5.2
Imports 6.9 7.9 -3.0 -9.3 2.7 3.0 4.0
GDP 5.3 5.2 -3.0 -7.0 -0.4 1.1 2.8
GNP 6.3 3.9 -2.8 -9.8 0.3 0.8 0.9
Source: Irish Department of Finance and IMF Country Report for Ireland No. 11/276 and IMF Fiscal
Monitor September 2011

12. 16"
14"
12"
10"
8"
6"
4"
2"
0"
2006" 2007" 2008" 2009" 2010" 2011"
UNEMPLOYMENT ~ 14.4%

13. 0.00%
2.00%
4.00%
6.00%
!6.00%
!4.00%
!2.00%
1971!04!01%
1972!05!01%
1973!06!01%
1974!07!01%
1975!08!01%
1976!09!01%
1977!10!01%
1978!11!01%
1979!12!01%
1981!01!01%
1982!02!01%
1983!03!01%
1984!04!01%
1985!05!01%
1986!06!01%
1987!07!01%
1988!08!01%
1989!09!01%
1990!10!01%
1991!11!01%
1992!12!01%
1994!01!01%
1995!02!01%
1996!03!01%
1997!04!01%
1998!05!01%
1999!06!01%
Benchmarked%Unit%Labor%Costs%!%Total%for%Ireland%
2000!07!01%
%"Changes"in"Wages"and"Prices,"197142011"
2001!08!01%
2002!09!01%
2003!10!01%
2004!11!01%
Consumer%Price%Index:%All%Items%for%Ireland,%Index%2005=100.%
2005!12!01%
2007!01!01%
2008!02!01%
2009!03!01%
2010!04!01%

14. CAUSED BY:
An old-fashioned credit boom.

15. Year on year percentage change in the numbers of customer loans
of Anglo Irish Bank, Bank of Ireland, and Allied Irish Bank (AIB).
Source: Central Bank of Ireland.

16. Growth rate in total household lending and total household deposits. Source: Central Bank of
Ireland, Table A.18 Money and Banking Statistics.

17. RESULT: BALANCE SHEET
RECESSION.

18. !
Assets% €bn% Liabilities% €bn%
A.!Cash! 16.2! E.!Government! 116.5!
securities/borrowings!
B.!Non>bank!NPRF! 15! F.!Provisory!notes! 30.9!
C.!Non>bank!fin.!Assets! 31.2! !!!!!!!!!Anglo!Irish!bank! 25.3!
D.!NPRF!investment!in!banks! 9.4! !!!!!!!!!Irish!Nationwide! 5.3!
Total!financial!assets!(C+D)! 9.4! !!!!!!!!!EBS! 0.3!
! ! G.!Special!investment!shares! 0.7!
EBS/INBS!
! ! GGD!(E+F+G)! 148.1!
! ! Net!government!debt!(GGD)>non.! 116.9!
Financial!assets,!(C).!
Loan!assets!of!NAMA! 30.7! Bonds!issued!by!NAMA! 30.7!
Ireland's Assets and Liabilities at the end of 2010.
Source: NTMA.

19. Composition of Loans in EU/IMF Bailout Package. Source:
Department of Finance.

20. Cure: Austerity?

21. €Bn 2011 2012 2013 2014 2015
Total
6.0 3.6 3.1 3.1 2.0
consolidation
Expenditure 3.9 2.1 2.0 2.0
Current 2.1 1.7 1.6 1.6
Capital 1.8 0.4 0.4 0.4
Taxation 1.4 1.5 1.1 1.1
Other 0.7
Indicative consolidation measures. Source, Irish Fiscal Advisory
Council, Fiscal assessment report October 2011

22. 1.
Fiscal consolidation. d.Burden sharing by holders of subordinated
(not senior) bond debt.
a. Taxes are to be raised. Carbon, property,
and water taxes are to be introduced, a 3. Structural reforms to the
lowering of personal income tax bands and labour market
credits is to be pursued.
a. The IMF proposed a reduction of the
b. Government expenditure, including social
minimum wage. Government scrapped this.
protection expenditure and numbers of
public sector workers is to be reduced.
b. Increase workplace training and internship
positions.
2.
Financial Sector Reforms
c. Government will introduce legislative
a. A further deleveraging of Irish banks by changes to remove restrictions to trade and
€72 billion over 3 years. competition in sheltered sectors including the
legal and medical professions.
b.There will be a reorganisation of the
banking sector. Smaller banks are being
merged with larger ‘pillar’ banks.
c. Increases in Tier 1 capital ratios of ‘pillar’
banks.

23. SIMPLE MODEL
! = !! + !"!
! = !! − !";!
∗
1
! = (!! + !!! ) !
1 + !"
1
!∗ = (−!!! + !! ) !
1 + !"
!" 1
= ≥ 0!
!!! 1 + !"
!∗ !! − !!!
∗ = (! + !! )! ≥ 0!
! ! !
!∗
! !∗ 1 + !" !!
!−!
= ≥ 0! x. y > !
!!! (!! + !!! ) !
!−!+!

24. Fiscal Surplus
DPS -
DPS +
CA Deficit CA Surplus
Ireland
2007 DPS -
DPS +
DPS =0 Fiscal Deficit
Domestic private sector fin. Bal. = current account bal. - fiscal bal.

25. Fiscal Surplus
DPS -
DPS +
CA Deficit CA Surplus
DPS - Ireland
201X
DPS +
DPS =0 Fiscal Deficit
Domestic private sector fin. Bal. = current account bal. - fiscal bal.

26. Current'Account'
2000%
0%
1998%1999%2000%2001%2002%2003%2004%2005%2006%2007%2008%2009%2010%
!2000%
!4000%
!6000%
!8000%
!10000%
!12000%
Ireland’s current account. Source: CSO

27. IRELAND IN 1980. FISCAL
FAIRIES?
Exchequer borrowing as a percentage of gross national product,
1980-1990. Source: Department of Finance,

28. IRELAND IS NOT THE ROLE
MODEL FOR AUSTERITY
• Historical experience argues against it.
• Small open economy considerations matter.
• The experience of the 1980s in Ireland shows that it is
possible to reduce fiscal expenditure in a small open economy
openly courting foreign direct investment with friendly
taxation rates when the rest of the world is growing and one
is receiving transfers from other states whilst reducing costly
unemployment through emigration.