Ireland faces another difficult budget in the next week or so.  Irish people have seen the value of their assets fall, and most of them have seen a fall in their incomes through a combination of  wage reductions and tax increases.

But it is important to keep “austerity” in proportion
  • Real GNP is back now to the  level it was at in 2004, but it is still  60% higher than it  was in 1997 (in 2007 it was 90% higher than it  was in  1997)
  • Household net worth (which takes account of borrowings) is back to the  level it was in  2003 
  • Consumer spending in the first quarter of 2012 was  back  to the  level it  was  in 2006, but  is  still 80% higher than it was in 1997 (Admittedly there are more people in the country than there were in 1997, do  consumer spending per person is not 80% up on  1997)
  • Ireland has regained competitiveness. Its real exchange rate vis a  vis the rest of the euro zone has recovered from the worst excesses of the bubble economy and is now back to the  level t was at in  2000, but Ireland is still  a good deal less competitive than it was in 1997.
So, overall, the spending power of Irish people is  still there, but it is differently distributed than it was at the height of the boom, and than it was back in  1997, when  the country had a solidly based economy, that had not been  pumped up artificially by borrowing. Some of the changes that will be made in the budget  will be ones that we would have had to make anyway, evn if our creditors were not demanding them, because of the eventual  ageing of  our society and the extra costs that will bring.
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