My father used to introduce me to people as "the heir to the family debt". It's a pretty good description for Ireland today. Ireland has a very large level of debt, as well as a large growth rate of debt, this year and next. Of course that is not a good thing. What are the prospects for us paying down that debt?
Europe has a set of rules supposed to stop member states' spending from getting out of hand. These rules say that no government can borrow more than 3% of its economic output in any given year.
This year, when you add in the cost of bailing out our banks, Ireland will borrow 32% of its output. So we're breaking the rules in a big way. That's OK, up to a point, because almost everyone else in Europe is also breaking those rules in these difficult times.
Another rule Ireland is breaking is a rule about debt sustainability. Roughly, over the medium term, if your country's real rate of economic growth is greater than its real rate of debt servicing, then it will be able to pay down the debt. If it can't, then you must at some point restructure your debt.
Who are the heirs to this mess?
So I asked myself a question: who will pay down this debt? Who are the heirs to this mess? The private sector will pay down this debt, if it can, via increased productivity at the firm level, leading to higher profits, and more taxes, which will be used to pay off the debt. And what is happening in the private sector?