While in last week’s Budget the Irish Government talked up its proposed tax cuts, the big picture was one of continued fiscal consolidation. All else equal, this will drag on growth. But Ireland’s economy should be strong enough to continue expanding at a healthy pace.
By contrast, the Italian Government announced a more expansionary Budget. But this could run up against opposition from the European Commission. What’s more, we think that Italian public debt is unlikely to fall as quickly as official forecasts suggest. So Italy is still vulnerable to renewed market concerns about debt that could push borrowing costs considerably higher.
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