Irish Brace For Strict Austerity Budget As some debt-stricken European countries enter another round of austerity budgets, Steve Inskeep speaks to economist Jacob Kirkegaard about whether Europe's experience resembles the Asian economic crisis of the late 1990s. Kirkegaard is a fellow with the Peterson Institute for International Economics.
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Irish Brace For Strict Austerity Budget

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Irish Brace For Strict Austerity Budget

Irish Brace For Strict Austerity Budget

Irish Brace For Strict Austerity Budget

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As some debt-stricken European countries enter another round of austerity budgets, Steve Inskeep speaks to economist Jacob Kirkegaard about whether Europe's experience resembles the Asian economic crisis of the late 1990s. Kirkegaard is a fellow with the Peterson Institute for International Economics.

STEVE INSKEEP, Host:

When we talk about austerity in Ireland, what does that mean for Ireland?

JACOB KIRKEGAARD: Basically it just means that everybody is going to feel this drive.

INSKEEP: When you say firing public workers or shrinking the public payroll...

KIRKEGAARD: Yeah.

INSKEEP: ...in any event, what parts of the government are being cut here?

KIRKEGAARD: Well, it hasn't been fully announced yet. We don't actually know who they are going to target. What we do know is that they have set a framework that are in these sort of lower tens of thousands.

INSKEEP: Is that a lot for the Irish government?

KIRKEGAARD: For a country the size of Ireland, that's a non-trivial call(ph).

INSKEEP: Now, you also said taxes will go up, almost every taxes, except, you said, corporate income taxes. Why would they be spared?

KIRKEGAARD: Part of that is that - and this is actually very, very controversial - because Ireland has had a 12.5 percent corporate income tax since the early 1990s.

INSKEEP: That is low.

KIRKEGAARD: That is very, very low. And they have essentially used that to attract a lot of foreign direct investments from the United States and from other European countries. If you had forced the Irish to raise their corporate income tax, you would essentially have cut off the one major source of economic growth that Ireland still has.

INSKEEP: Attracting companies.

KIRKEGAARD: Attracting more companies, foreign direct investments. I strongly doubt that the Irish corporate income tax will be stuck at 12 and a half percent.

INSKEEP: It could go - just to pick a number - it could go to 20 percent and still be way lower than most countries.

KIRKEGAARD: Yeah, yeah.

INSKEEP: I'm real interested to listen to you talk through these numbers, because you have a situation which gets to this question of national sovereignty, doesn't it? You have a country that has a particular economic policy, they're trying to compete with other countries, and suddenly they are depending for a bailout on the countries they've been competing against who may have an opinion about their economic policies, a bit of a cautionary tale here, I would think.

KIRKEGAARD: Oh, absolutely. I mean, imagine if Delaware had to be granted a bailout by the U.S. Governors Association.

INSKEEP: Oh, and Delaware has corporate laws that have attracted tons of corporate headquarters.

KIRKEGAARD: This is essentially, this in a nutshell has been what Ireland has gone through. Ireland has another problem: they haven't had a change of government yet. The government that is now in power has been more or less in power since the mid-1980s. So, it was on their watch that all of this happened and now they're coming back and saying, look, we need you to take all this pain to put our country back on a solid standing.

INSKEEP: Well, given that we're basically on the cusp of a political campaign, I'm curious if anybody's campaigning against this budget deal.

KIRKEGAARD: Oh, oh, absolutely, absolutely.

INSKEEP: So is it possible you could end up with a government elected that says we reject this whole bailout deal?

KIRKEGAARD: And, you know, we know from this country the politics that are involved in a bailout...

INSKEEP: People are asking why should I pay billions for a bank - yeah.

KIRKEGAARD: Exactly. And it actually gets even worse. Ireland, as part of this bailout package, which was 85 billion euros - Ireland is actually contributing 17 and a half billion euros of that themselves. Ten or so billion euros are going to come from what's called the National Pension Reserve Fund.

INSKEEP: Uh-oh.

KIRKEGAARD: Which is essentially, you know, the national Social Security trust fund. So what you are actually having here is the equivalent of - if, say, George Bush in 2008 had gone into a reelection campaign having just raided the Social Security trust fund to bail out, you know, Citigroup and AIG. I mean, the politics are just explosive.

INSKEEP: Mr. Kirkegaard, thanks very much.

KIRKEGAARD: My pleasure.

INSKEEP: Jacob Kirkegaard is a research fellow at the Peterson Institute for International Economics here in Washington, D.C.

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