The Stability Programme Update (SPU) is one of the bureaucratic building blocks created by the European Commission in the wake of the financial crisis a decade ago.
It holds its place on the same bookshelf as the 'Six Pack', the ‘Two Pack’, the European Semester and the Macroeconomic Imbalance Procedure. All sensible and, thankfully for most us, relatively obscure diktats to keep us compliant with the EU’s Fiscal Compact.
Remember that? We enshrined that in our constitution back in 2012. Since then we’ve dutifully followed the EU’s budgetary rules that keep the public finances within defined limits of expenditure and debt.
In his influential 1999 book, ‘The Return of Depression Economics’, the Nobel prize-winning economist Paul Krugman analysed the various economic crises of the 1990s. He warned of the danger that "...the useful rallying cries of one era have become the dangerous shibboleths of another". He criticised the one-size-fits-all approach to economics hemmed in by "...obsolete doctrines that clutter the minds of men".
The budgetary rules agreed in Brussels a decade ago and endured with regular harrumphing across Europe were in danger of becoming ‘dangerous shibboleths’ in the face of this crisis, and arguably even before this.
But economists are no match for bureaucrats.
Early in the crisis, the European Commission unleashed with a flourish what it termed ‘The General Escape Clause’.
Monty Python would have been proud.
This has allowed member states to spend whatever is needed to tackle the Covid-19 virus. This includes expenditure on health measures and income supports.
We’ve seen the results in this country with the Covid-19 pandemic unemployment payments, the wage subsidy scheme and extra staff and resources in the health sector.
Yesterday the Minister for Finance announced an increase in expenditure of €8 billion. This is on top of the €6.8 billion already allocated.
This will all require considerable extra borrowing. The National Treasury Management Agency announced its intention to raise an additional €10 billion on international markets bringing its funding target for this year as a whole to an eye-watering €24 billion.
No doubt, when this is all over, we’ll return to the sacred mysteries of the structural deficit but in the meantime budgetary ‘rules’ have been chucked out the window.
This all brings us back to the SPU. Yesterday, it crashed through the relatively small circle of attention it normally commands to deliver a searingly honest and frightening assessment of where we’re at, thanks to the Covid-19 pandemic.
It explores the sectors it describes as being in the ‘economic front-lines'. It calmly informs us that unemployment will peak at ‘the highest level on record’ - 22%- before averaging out at just under 14% this year.
It reveals that the economy will shrink by 10.5% this year - a drop matched only during the economy’s collapse in 2009. And if that wasn’t bad enough, it goes further to reveal that when the multinational sector is stripped out, the impact on the domestic economy will be even greater, with modified domestic demand expected to fall by 15.1% this year.
The Department of Finance was very keen to point out that this year’s SPU describes a scenario rather than a firm forecast. This is not to be taken with the pinch of salt many use when considering the general usefulness of economic forecasts, even in more predictable times.
It’s not a disclaimer. It’s emphasising that the course the pandemic takes through the world and our society makes it impossible right now to see where this is all going for sure.
With the rules temporarily cast aside and the blizzard of numbers distilled, we now know this:
- This is not something from which we will suddenly bounce back later this year.
- The longer this goes on, the bigger the damage to our economy.
- It will cost a lot of money to sustain us in the meantime.
- It will cost a lot of money to rebuild what we had.
- Money will matter eventually.
But hopefully by then, someone will have come up with a different set of rules.