The rate of interest on short-dated borrowings fell to zero, or even turned negative, for the most credit-worthy countries during the COVID-19 outbreak. The central banks loosened monetary policy by buying government debt and there was plenty to buy as the governments loosened budget policy too. They could borrow almost for free.

By 2022, when the vaccination drive had delivered relief from the pandemic, it was time to reconsider the stance of macro policy and the central banks, by their own admission, got the timing wrong. They were slow to spot the uptick in inflation, thought it would be small and transitory and persisted with very low official interest rates for longer than was advisable. They are not omniscient and were quick to admit that their inflation forecasting models did not foresee the extent of the inflation upsurge.

Inflation looks like it has been tamed, at least for now, and the major central banks, including the US Federal Reserve, have finally begun to reduce official interest rates. The European Central Bank (ECB) is the one that matters for Ireland. The ECB rate cut announced last week was its second, a cut of one-quarter of 1%, same as the first cut of the current cycle in June. The ECB expects inflation to stay moderate and the official target (price rises no more than 2%) is coming into view. Depending on the numbers over the next few months, the ECB may proceed with further reductions into 2025. A factor in its deliberations will be the apparent weakness of the output recovery in several Eurozone countries.

Especially if carried forward into next year, the loosening of monetary policy by the ECB is itself a reflationary boost – indebted businesses and households will save on interest bills and so will the government. Central bank interest rates determine the cost of funds to commercial banks and the rate they can earn on surplus liquidity. These work their way through to government borrowing costs and to rates charged by banks to retail customers.

With an election due soon, the Irish political parties are competing to find expansionary budget measures, dressed up as prudent, when the ECB has already embarked on a loosening of monetary policy. The pretence of prudence plays to the public perception that the once-off €14bn from the European Court decision on back tax from Apple is free money, to be freely spent.

To put the figure in context, outstanding State debt totals €220bn, almost 16 times the amount incoming, just once, from Apple. The State has financial assets to set against the €220bn, but the net figure is still €180bn, according to the Fiscal Council, one of the higher sovereign debt burdens among developed countries. Talk about which ‘sovereign wealth’ fund should play host to the unexpected Apple billions is testament to the creative accounting prowess of Government and to a credulous media.

Ireland does not have any sovereign wealth, the country is a net debtor, the legacy of the bust of 2010 when Ireland, unable to borrow, was forced into an IMF programme.

Big deficits from 2008 onwards proved unsustainable following the collapse of once-off tax receipts during the property bubble and earlier expenditure commitments optimistically embraced by the Government.

The bailout of bank creditors of October 2008, in the belief that they were less than completely bust, made things worse. The big victim of the ensuing cutbacks was the State capital programme, halved in just four years. The under-investment has left an enduring legacy.

There are two arguments against a pre-election spending spree. The first, articulated by economist John FitzGerald in The Irish Times a few weeks back, is that the economy is close to full employment. It is not possible to reflate an economy where productive capacity is largely spoken for, since extra spending will add to wage and price pressures and suck in imports.

The second is the case for keeping your powder dry for when you might actually need it, explained by Seamus Coffey, who teaches at University College Cork and chairs the Fiscal Council. Coffey’s argument is that the Irish economy is small and volatile. When trouble strikes, it is advisable to ensure the capacity to run deficits when unemployment looks set to rise. His advice is to get the net debt under control in the good times, avoiding emergency resort to official lenders like the IMF, and the tight budgets on which they will insist, including an inadequate capital programme for years on end.

These two arguments point in the same direction and rhyme with the lessons of history. Even if strong corporation tax receipts persist for another few years, the best long-term interest is served by running budget surpluses and reducing the overhang of sovereign debt.