Why Ireland’s Austerity Budget Isn’t Likely to Prevent a Default

Thursday, December 9, 2010
By Paul Martin

By Charles Hugh Smith
DailyFinance.com

Despite the widely expected approval of an austerity budget by the Irish government, the long-term solvency of Ireland is still in doubt.

Simply put, the losses that must be covered by Irish taxpayers are larger than the nation’s economy can support. The current government deficit is a staggering 32% of the nation’s GDP, a post-war European record. The Irish government collected 31 billion euros in tax receipts while spending 50 billion euros on its normal services, then exacerbated its debt burden with a 45 billion euro bailout of Irish banks.

In comparison, Greece’s deficit is 16% of its GDP, and the deficits of Spain and Portugal are about 10% of their GDPs. The deficit limit for members of the euro common currency is 3%, which means Ireland’s gap is more than 10 times the acceptable level.

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