The stricter budgetary framework of the European Union is bad news for Belgium, with its large deficit and high national debt. Ireland is one of only four EU member states not to record a budget deficit and has one of the lowest debt ratios in the eurozone (43.7% of GDP). Barely twelve years ago, the national debt was still 120% and the Irish were on the European drip. How did the country realize that resurrection?
From heaven to hell and back, that is how the past three decades can easily be described for Ireland. In the second half of the 1990s, the Irish economy grew by almost 10 percent annually, while the unemployment rate and the number of poor people on the island fell dramatically. The Irish mainly owed this enormous economic expansion to the creation of a particularly business-friendly climate. Low corporate taxes, among other things, made Ireland a favorite destination for multinationals.
That fairy tale of the Celtic Tiger came to an abrupt end in 2008, when the Irish economy was hit amid the financial crisis. “An important element in the strong economic growth was an unlikely real estate bubble,” says MEP Johan Van Overtveldt (N-VA), who knows the Irish story well. “It blew up in their faces after the collapse of the American bank Lehman Brothers and the subsequent banking crisis. Ireland was then the fourth country, next to Greece, Spain and Portugal, to face a debt crisis. That had a huge impact on the banking sector. Public debt increased by almost 200 billion euros in a short time. In 2012, Ireland carried a public debt of 120 percent of its GDP.”
How different the situation is twelve years later. According to the latest figures from the European statistical agency Eurostat, Ireland has had a budget surplus for two years (1.7% of GDP) and the national debt has now fallen to 43.7 percent of GDP, one of the lowest in the eurozone. The Irish government announced yesterday that it expects a budget surplus of 8.6 billion euros for 2024. For comparison: the Belgian budget deficit increased last year from -3.6 to -4.4 percent, the national debt from 104.3 to 105.2 percent of GDP. Our country is therefore one of the worst students in the European class.
How did Ireland achieve this resurrection?
JOHAN VAN OVERTVELDT. “By immediately rolling up your sleeves. I remember the then Chancellor of the Exchequer Michael Noonan saying very laconically: ‘What we have to do is keep our budget more or less in balance and stimulate economic growth.’ Simple as that. They have done nothing spectacular, no murderous restructuring or tax increases. Simply balanced their budgets with appropriate restructuring and taxes, combined with economic growth that was higher than the eurozone average.”
That seems easier said than done.
VAN OVERTVELDT. “That is true. But what is especially striking is that they looked very carefully and systematically into expenditure that, for example for demographic reasons, had a tendency to increase sharply in the future. On this basis and with a good awareness of long-term developments, they took measures relatively quickly, which were rarely draconian but did slow down certain dynamics.”
Is that the lesson for Belgium, which also faces a tough job in the coming years due to the stricter budget rules of the European Union?
VAN OVERTVELDT. “Indeed. The preparatory documents are there, from the Planning Bureau, the Monitoring Committee, the National Bank… It is really high time to look from a political perspective to see where we really need to intervene, looking to the future, to get things back in order. A precise analysis of each expenditure item, especially in relation to how it evolves. You don’t even have to make cuts everywhere, certain measures may be more sustainable than others. Where you get into trouble, you have to do something.”
