Dr. Mark Cassidy:

First, spending more money during a crisis is what one wants to do. Economically that is what one wants to do, to sustain spending in the economy and to prevent hardship within the economy. One of the reasons, if not the main reason, we argue for lowering the public debt ratio during good times is to build up the funds or the buffers to allow us to spend money during times like Covid or the war in Ukraine. When a temporary shock hits the economy it is absolutely appropriate to diagnose who is most affected and for money to be spent to alleviate the hardship caused. The lower the debt ratio is at the start of the crisis, the more the economy is able to do that while continuing to borrow on international markets. We came into this crisis in much better shape than the crisis of 2010 to 2012, when international markets would not lend to us because they judged that our debt position was not necessarily sustainable. The first point to emphasise is the importance of getting the debt lower when times are good.

The second point that is extremely important is the difference between a temporary shock hitting the economy and a permanent shock. If a permanent shock hits the economy, then it is a very different matter in terms of the appropriate policy response. To give an example in the current context, ultimately if higher energy prices are permanent and if the prices we see now persist forever, then for an energy importing economy like Ireland, the economy becomes permanently worse off and we have to pay that cost. No Government policies can restore the previous cost of energy supply and the money to meet the extra costs cannot be borrowed indefinitely. It then becomes a political decision on how the costs will be redistributed within society. Permanent shocks are very different because we cannot borrow the money forever to pay for them and society needs to make a choice about how those costs will ultimately be redistributed or absorbed over the longer term.