Monday, 28 November 2011
Ireland not an austerity role model ...
Michael Burke: This is an interesting piece from Martin Knijbbe on Ireland as a poster-boy for 'austerity' measures. In response to an article from Jurgen Stark extolling Ireland's export-led recovery, he examines that actual trends in the trade balances of key EU economies currently as well as the growth of both imports and exports. Stark remains a member of the board of the ECB for the time being and argues that 'internal devaluation', wage cuts are responsible for Irish export-led growth. This piece, which originarly appeared on Real World Economics, challenges each of those assumptions.
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The EU's Grand Panjandrums are really struggling. There is a widespread lack of understanding in the EU that markets can be subject to democratic governance and yet be free of the abuse of market power and political meddling. Gvernments want to be able to meddle for all sorts of reasons, but when they do rent-seekers within and without are in clover. This lack of understanding is partly fuelled by a common left-wing conviction that markets are always and everywhere evil; and partly by the desire of politicians across the spectrum to reward their political donors and influencers.
In any event, the Germans (and, let’s not forget, the Dutch, Austrians, Finns and probably the other smaller newer members) are sticking to their guns that, with Greec, Ireland and Portugal in the treatment room, the other badly-governed countries, Spain and Italy, should be capable of sorting themselves out - if enough pressure is exerted. There seems to be a determination not to allow markets determine policy responses and to develop mechanisms over time that will secure the required democratic legitimacy. Whether this is a desire to exert effective democratic governance over markets and to force badly-governed countries to get a grip or it is this instinctive mistrust of markets (or a bit of both) is hard to discern.
Unfortunately, Ireland’s indirect financial transfer seeking to protect the senior bond funding of the rest of the EZ’s banks is the eaten bread that’s soon forgotten. Some relief may come eventually. But while the price level of household consumption in Ireland is 14% above the EZ average (and driven by a whole army of rent-seekers and consumer-gougers) there is unlikely to be much immediate relief.
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