RECOVERY SCENARIOS FOR IRELAND http://www.esri.ie/UserFiles/publications/20090513115638/RS007.pdf
For Ireland the Finnish experience suggests the benefit of prompt action to tackle any public finance crisis. Furthermore, it also suggests that prompt action to achieve the necessary improvement in competitiveness is important if the subsequent rise in unemployment is to be limited. In the case of Ireland this has to be achieved by a reduction in domestic price levels, including wage rates, given our fixed exchange rate relative to other Euro Area countries. Finally, it highlights the importance of developing adequate labour market policies to ensure that the essentially temporary rise in unemployment does not result in an increase in the numbers of long-term unemployed over the course of the next decade.
Where’s the Austrian perspective, The ESRI aren’t an Austrian-leaning institute. While I do like their brutal honesty whith respect to the necessity of falling wages (as devaluation of currency as a “solution” is off the table), I take it that they will argue that “grinding deflation” isn’t a good thing.
Can I use my predictive powers to guess that the ESRI takes the view that Finland got out of its slump with a 40% devaluation of it krona?
Yes but they admit Ireland does not have that option, so the alternative is wage cuts. They also are atleast neutral on the issue of the public pension levy.
May be I didn’t notice but I could only find passing references to “budget cuts”, mostly given by postponing planned projects. That means that, in line with the rest of Europe, that is absolutely out of question. Lower wages mean lower tax income… so where’s the money coming from given the fact that they envisage only a slight increase in debt and they cannot inflate/debase their currency as much as they’d like? Will it be another case of the “creative accounting” so favored by South European countries?
The good point is that I see they are part of the increasing number of “mainstream” figures understanding this is not a passing crisis that will be solved by smiling politicians going on TV and lying like there’s no tomorrow but a very serious depression requiring a complete rethinking of the present socialdemocratic model. We are still far from having a cure but it’s a good start.
The public pensions levy - which is only paid by public employees, was basically a tax on government workers, but really was a pay cut. The bad news is that Ireland still seems to have the highest paid teachers in Europe, and the least effective if you consider that most Irish cannot speak Irish (Gaelic).