PUTTING TOGETHER figures published yesterday by the Department of Finance in Dublin and by the Luxembourg-based EU statistics body Eurostat was illuminating. Together, they allow a glimpse of the true state of the public finances in 2011 (the monthly “exchequer returns” omit chunks of revenue and spending and are thus of limited value in understanding the big picture).
By my calculations, general Government revenue stood at €55.8 billion in 2011, just €300 million up on 2010. And that despite painfully large tax increases. Excluding additional cash poured into banks, the State spent a total of €70.4 billion, a reduction of more than €2 billion on 2010.
Those two sets of figures provide more evidence – potentially – that cuts are a more effective way of closing deficits than tax hikes.
Only two detailed spending figures were published yesterday – interest payments on the national debt and spending on investments of various kinds, know as “capital” spending. In 2008, the State spent €2.5 billion servicing its debts, while capital spending was almost four times bigger.
Last year, ballooning interest payments and a further big cut in capital spending meant that the former had overtaken the later to reach €5.3 billion. It is depressing that the State spends more servicing debts racked up in the past than on investment for the future.
Yesterday’s figures also show that the State’s mountain of debt is (a little) bigger than previously adjudged. Last year, €25 billion was added to it bringing the grand total, as of December 31st, to €169.3 billion – equivalent to 108 per cent of gross domestic product (GDP). Only Italy and Greece among the EU-27 are in a worse position.
Among the most closely watched figures is the size of the imbalance between spending and revenue expressed as a percentage of GDP.
Eurostat said the budget deficit was 13.1 per cent of GDP, by far the biggest among the EU 27. In the Government’s publications, much was made of the deficit being lower when bank rescue costs are excluded. Behind this is a spat between Dublin and Luxembourg.
National accounting is complicated. As Greece’s fiddling of its books shows, governments can be as adept at creative accounting as companies and individuals.
That is why EU states made Eurostat the ultimate arbiter on how they count their beans. The agency is tasked with ensuring everyone sticks to the same accounting rules.
Yesterday, the folk in the Grand Duchy gave Ireland a reprimand, saying it doubted the figures from Dublin and imposed its own calculations (along with Britain, Ireland was the only country to have its knuckles rapped).
If yesterday’s news was hardly music to Irish ears, and could make convincing the rest of the world that the country can claw its way out of the mire more difficult, developments from across the Continent in recent days make the wider euro crisis appear more insurmountable than ever.
A monthly survey of Europe’s manufacturing bosses, published yesterday, suggests the sector continued to contract in April – and that includes German manufacturers, which are the largest producers of widgets in the western world and which had until recently appeared immune to the slump elsewhere in Europe.
Later in the morning, the Spanish economy was formally declared to be in recession after contracting again in the first three months of the year.
Politically, things have been little better. On Sunday, more than 13 million French voters backed extremists to the right and left in the presidential election. That is twice the number who favoured reactionaries five years ago and further sign of political radicalisation in Europe.
Developments in the Netherlands also give cause to wonder if the political capacity exists to confront the crisis. The Dutch coalition crumbled because it could not agree a budget. That comes after the Dutch central bank openly discussed the break-up of the euro zone last week. When technocrats start musing about hypothetical nightmare scenarios, the probability of those scenarios coming to pass is worryingly high.
