I've been following reports of the Irish attempts to respond to their burst economic bubble with austerity programs for a while now and today Matthew Lynn of Bloomberg delivers more bad news. Despite the pain austerity causes, the Irish economy isn't doing any better than governments that continue to spend.
Last week, there was a stark reminder that Ireland is still a long way from market redemption, almost two years after the credit crunch burst the real-estate and asset bubble that had been building up in the country for most of the past decade.
Credit rater Standard & Poor’s lowered its grading on Irish debt by one level to AA-, stressing the heavy cost of rescuing a banking system struggling to cope with the collapse of the property market. S&P estimates the cost of recapitalizing the banks will be about 50 billion euros ($63 billion). That’s almost a third of the economy.
Unlike some columnists covering the story in order to argue against similar spending restrictions elsehwere, Lynn is broadly sympathetic to the Irish, and hostile to the European Union whose membership began with such promise but brought only pain to a small economy that was doing just fine on its own.
Ireland had one of the most successful economies in the world when it joined the euro in 1999. All it has got out of monetary union is massive financial and real-estate bubbles, the collapse of which will scar the country for a generation.
The European Commission and the ECB should be looking hard at the Irish experience. They should suspend the limit on budget deficits for five years until there is some sign of economic growth. There should also be exemptions from paying for the Greek bailout -- it’s crazy for the Irish to borrow money to give to a country that is in the same boat. A tactful exit from the euro should be used as a last resort.
Giving trillions to wealthy rentiers and paying for it by gutting the middle class is not austerity. It is theft. You bloody whore.
Thank you for your consideration.
Posted by: K | 09/04/2010 at 02:54 AM