Ireland may breach the three per cent EU deficit limit for a number of years to ease the current exchequer difficulties, a leading economist said this morning.
Rossa White, chief economist at Dublin-based securities company Davy was speaking after the Government yesterday cut its 2008 economic growth forecast to 0.5 per cent and said the budget deficit will be 2.75 per cent, three times more than previously predicted.
Mr White said that because the exchequer's debt to GDP ratio "is very low" there is a strong argument that "we could increase debt and maybe breach that EU deficit limit for a couple of years just to ease the burden of the transition as we get through this property problem".
"We've seen other countries do it. Germany did it for two years in succession. We certainly have a strong argument in that our debt ratio is so low and we are investing in the future."
With the European Central Bank almost certain to raise interest rates this afternoon, Mr White said it could be argued that rates should have been 6 or 7 per cent when they were in fact 2 per cent for much of that period.
"So we did have the benefit of that in terms of activity, but we probably pushed our housing market a bit too far and now we are seeing the downside," he said.
On proposed Government spending cutbacks he said cutbacks in day-to-day expenditure were likely. "The best thing we could do probably is have some sort of a pay freeze in the public sector."
Bloomberg