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Anglo: the reason for the increase in the government deficit
Irish Economy
Irish deficit will be largest in the EU
The ESRI expects a 20% spending shortfall in 2010.
THE ESRI is predicting that Ireland will have the largest deficit in the EU in 2010. The think-tank predicts that Ireland will have marginal growth in 2010, with stronger growth in 2011 (GDP +2.75%).
In April the ESRI had expected a 12% shortfall between revenue and spending, however they now believe the shortfall will be closer to 20% in 2010. This is far above the 14.3 per cent registered in 2009. A 20% deficit would ensure that Ireland runs the largest deficit in the EU, for the second year running.
The main reason for the increase is due to a €12.9bn bailout of Anglo Irish Bank and Irish Nationwide, which Eurostat (the official European statistical agency) insists is classified as current spending. The bailout had been classified as an investment, but is now seen as current spending. The ESRI said this was the sole reason for the change in forecast.
“We expect the General Government Deficit to be 11½ per cent of GDP in 2010. Including the cost of the bailout monies for Anglo Irish Bank and INBS, this figure would be 19¾ per cent. For 2011, we expect the deficit to fall to 10 per cent of GDP. This is based on the assumption that a full €3bn package of austerity measures is implemented in the 2011 budget.”
The ESRI said it supports the Governments plans to cut the country’s deficit, but said that cuts in spending will reduce growth by 1%. The institute also believes that employment will not grow till 2012.
