Deputy Governor of Central Bank says that spending cuts are most effective in tackling country's debt problem
Stefan Gerlach, deputy governor of the Central Bank of Ireland, speaking at the German-Irish Chamber of Commerce, referred to the body of evidence in economic research that shows that spending cuts rather than taxes, inflation, or hopes for exogenous growth should be the go-to solution in the Irish case. The paper is delivered as the annual Budget 'kite-flying' economic policy season gets into full swing, as politicans and interest groups, in and out of Government, joust for attention in regard to Budget decisions.
Speaking at a conference on September 28th he concluded: "Overall, I therefore do not think that economies can grow or inflate away the debt with the ease to which they may have done so in the past. This leaves the third mechanism, primary surpluses, as the only way in which debts can be reduced. Primary surpluses can be achieved either by reducing spending or by raising taxes. While economic research suggests that fiscal stabilisation efforts that rely on expenditure cuts are more likely to be successful than those that rely on revenue increases, precisely how the necessary budget surpluses are achieved is entirely a matter for elected parliaments to decide since fiscal policy has large redistributional effects. My point here is simply that debts must be reduced through budgetary surpluses since the other avenues for debt reduction are closed."