IMF: We got effect of austerity wrong

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RTE news this morning lead with the story that the latest IMF report on the global economy notes that the only European economy to grow was Ireland. However, it didn’t mention this…

The IMF has admitted it completely underestimated the effects of austerity on the Irish economy and believed the tax increases and spending cuts would not have cost so many jobs.

The revelation comes in three pages of academic analysis tucked away in the body’s annual report being released in Tokyo today where the IMF and the World Bank are holding their annual congress.

The report says the IMF believed that for every €100 of austerity through higher taxes and spending cuts, the effect on economic growth and unemployment would be the equivalent of €50.

But in reality the effect has been between double and three times that — stripping the economy of €90 to €150 for every €100 taken out in budgets agreed with the troika.

Tom McDonnell of the independent think-tank Tasc said the report called into question the Government’s budgetary strategy.

“It suggests recent budgets have actually been more damaging to the Irish economy than the Government was estimating. It would also help explain why growth has been lower over the last few years than the Government had expected — and why the vaunted ‘return to growth’ has failed to substantively materialise.”

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6 Responses

  1. Jonathan

    October 9, 2012 10:36 am

    Isn’t that the thing with the Irish media? If you’re on the Left, you are automatically wrong until events prove you right. If you are on the Right, you are automatically right until events prove you wrong.

  2. Fergus

    October 9, 2012 9:48 pm

    Haha. As if the IMF didn’t know exactly the effect that austerity policies would have on economies. Austerity is more or less the same as the ‘Structural Adjustment Policies’ which the IMF imposed on large parts of the Southern hemisphere in the last few decades. It had disastrous effects there, just as austerity is having disastrous effects in the industrialised North now. Crucially, while both policies destroy the social infrastructure of health, education etc (the IMF insists on it) and stifle economic growth, they allow governments to continue to bleed money out of their countries to hand over to the banks.

  3. CMK

    October 9, 2012 10:44 pm

    Jonathan. I think you’re characterisation is not a true reflection of how the media analyses events here. If you’re on the Left, you’re wrong, full stop, every time. If you’re on the Right, you’re Right most of the time, and if you proved wrong by events you’re given plenty of time to come up with a plausible excuse on the understanding that whatever excuse is used will not be subject to critical analysis.

  4. Jonathan

    October 10, 2012 10:51 am

    Good point, CMK. Updated: Isn’t that the thing with the Irish media? If you’re on the Left, you are automatically wrong even if events prove you right over and over again. If you are on the Right, you are automatically right even if events prove you wrong over and over again. Call it ‘The Next 10 Years Augurs Well For The Celtic Tiger’ Rule…