What exactly is in the EU Fiscal Pact?

[ibis]

Debt might be 100% of GDP but a country has to pay it back out of tax revenue - which is about 40% or less of GDP itself. Ireland's debt is about 100% of GDP now. Our tax take is what? 35 billion? Which is only 25% of GDP (GDP is about 120 billion euro, right?) at the moment.

So to pay back 2% of GDP per year, it would take 8% of the tax take. Plus interest, which is about 5% interest on the 100% of GDP - which is 20% of tax take.

So to achieve a 2% reduction in debt per year, you need to be paying 28% of you tax take in the early years, reducing to 16% by the time you hit 60% of GDP - assuming no growth, which is a fair assumption if you are paying that much cash out of the country each year.

Edit: my 12,000th post. How depressing. Time for bed.

And another person blithely ignores the fact that the measure being used is the debt/GDP ratio. We never paid down the debt that gave us a 95.5% debt/GDP ratio in 1991 - hell, no, we increased it - yet by 1998 our debt/GDP ratio was 53.6%.

But maybe people are right, and we just don't have any hope - after all, we can hardly build a hi-tech economy with a population that apparently widely lacks basic comprehension and mathematical skills.

[Houyhnhnm]

What exactly is in the EU Fiscal Pact?

Short answer: the cornerstone of Merkel's election strategy.

Long answer: a set of pro-cyclical fiscal rules that will consign the EU to a generation of austerity that, had they been in place prior to the 2007 crash, would not have prevented us from ending up in this mess (we had a low debt-GDP ratio throughout the Bertie era).

[Passer-by]

But maybe people are right, and we just don't have any hope - after all, we can hardly build a hi-tech economy with a population that apparently widely lacks basic comprehension and mathematical skills.

Well, we completely failed to distinguish between the average house price and the median house price during the "celtic tiger" years, so what do you expect?

[The Judean Peoples Front]

This treaty is an absurdity and the spin surrounding it is nonsense. Take idiots like Michael O'Regan who thinks that if it had have been in situ during the roaring naughties that we would have avoided the sorry state of affairs in which the country now finds itself. What utter bullcrap, as Ireland's debt to GDP ratio was 25% of GDP circa 2007 while budget surpluses had been the norm across the economic cycle. Ireland would have passed this strictures of the pact with flying colors.

As to the real causes of Ireland's predicament, well we know that govt relied on a narrow tax base which was effectively a margin on the excessive borrowings that saw the banking system eclipsed the national economy by a factor of 7. I haven't read the full treaty as yet however I did use a word search to see if 'housing boom' of 'property bubble' were mentioned anywhere in it and these terms didn't appear anywhere (I'll stand corrected if somebody can point this out). So back to the matter, if this treaty had have been in situ at the outset of the euro project, this country would still be in the mess it is today.

Lastly, any first year macroeconomics student could tell you that if you can't manipulate interest rates, nor monetary policy, the only means by which any sembelance of independent economic policy can be maintained is through fiscal policy. If Ireland signs up to this pact we need to admit that just about the entirety of economic policy is now out of the hands of democratic politics.

[He3]

Then there's this -

Permanency of debt brake 'may not be constitutional' - The Irish Times - Fri, Feb 03, 2012

[Lonewolfe]

But maybe people are right, and we just don't have any hope - after all, we can hardly build a hi-tech economy with a population that apparently widely lacks basic comprehension and mathematical skills.

So, Peter Matthews says that the bank debt is about 60% of our national income of our GDP and it is unsustainable.

We need a write down.

What dya reckon oh wise one?

[DownTheyGo]

Short answer: the cornerstone of Merkel's election strategy.

Lack of empathy... sound familiar to anyone?

[ibis]

So, Peter Matthews says that the bank debt is about 60% of our national income of our GDP and it is unsustainable.

We need a write down.

What dya reckon oh wise one?

Well, mostly that he can't do sums. The bank bailout cost is €63 billion, GDP about €155 billion, and that definitely doesn't make 60%. He might have meant GNP, but that's about €127 billion, so it still can't make 60%. And not all of the bank bailout money is debt, either.

[ibis]

This treaty is an absurdity and the spin surrounding it is nonsense. Take idiots like Michael O'Regan who thinks that if it had have been in situ during the roaring naughties that we would have avoided the sorry state of affairs in which the country now finds itself. What utter bullcrap, as Ireland's debt to GDP ratio was 25% of GDP circa 2007 while budget surpluses had been the norm across the economic cycle. Ireland would have passed this strictures of the pact with flying colors.

As to the real causes of Ireland's predicament, well we know that govt relied on a narrow tax base which was effectively a margin on the excessive borrowings that saw the banking system eclipsed the national economy by a factor of 7. I haven't read the full treaty as yet however I did use a word search to see if 'housing boom' of 'property bubble' were mentioned anywhere in it and these terms didn't appear anywhere (I'll stand corrected if somebody can point this out). So back to the matter, if this treaty had have been in situ at the outset of the euro project, this country would still be in the mess it is today.

Lastly, any first year macroeconomics student could tell you that if you can't manipulate interest rates, nor monetary policy, the only means by which any sembelance of independent economic policy can be maintained is through fiscal policy. If Ireland signs up to this pact we need to admit that just about the entirety of economic policy is now out of the hands of democratic politics.

But your argument that Ireland wouldn't have had any problem passing the tests in the treaty over the last decade rather contradicts your claim that the treaty would strip us of the power to set our own fiscal policy, since the obvious implication is that we would have been perfectly able to do so.

[Pharaoh]

This treaty is an absurdity and the spin surrounding it is nonsense. Take idiots like Michael O'Regan who thinks that if it had have been in situ during the roaring naughties that we would have avoided the sorry state of affairs in which the country now finds itself. What utter bullcrap, as Ireland's debt to GDP ratio was 25% of GDP circa 2007 while budget surpluses had been the norm across the economic cycle. Ireland would have passed this strictures of the pact with flying colors.

As to the real causes of Ireland's predicament, well we know that govt relied on a narrow tax base which was effectively a margin on the excessive borrowings that saw the banking system eclipsed the national economy by a factor of 7. I haven't read the full treaty as yet however I did use a word search to see if 'housing boom' of 'property bubble' were mentioned anywhere in it and these terms didn't appear anywhere (I'll stand corrected if somebody can point this out). So back to the matter, if this treaty had have been in situ at the outset of the euro project, this country would still be in the mess it is today.

Lastly, any first year macroeconomics student could tell you that if you can't manipulate interest rates, nor monetary policy, the only means by which any sembelance of independent economic policy can be maintained is through fiscal policy. If Ireland signs up to this pact we need to admit that just about the entirety of economic policy is now out of the hands of democratic politics.

Whatever about the debt GDP ratio if we had some outside body making the observation that even though we appeared to be running big surpluses we were in fact building ever increasing structural deficits masked by one off tax windfalls.
If we had been forced for example to use the proceeds to pay down the national debt substantially - we could probably have even reduced it to zero if we really wanted and our overall debt would have been maybe 50BN less when the crash came.

If McCreevy's budgets had been scrutinised by someone who observed that public spending was being ramped up by 10% year on year and had the power to say NO you can't do that or that we don't agree that the extent of tax cuts you propose are appropriate.

Would'nt this have taken the heat out of the housing boom and by extension the credit bubble.
How precisely the structural deficit is defined is something I haven' head much discussion on.