"Ireland has experienced near-depression conditions over the past 18 months, and the expectation that budget cuts will lead to spontaneous recovery through which the private sector will compensate for the retreat of the public sector is unproved. Indeed, there is a considerable risk that removing spending power from the economy will lead to more companies going bust and deter the survivors from investing more".
You can read the rest of Larry Elliott's take on Irish economic policy in today's Guardian here.
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Do you think the Greeks will come out of recession ahead of Ireland?
Larry Elliott expresses some scepticism on the consensus view that Ireland's austerity measures will lead to lower yields.
His scepticism is fully justified.
Ireland's first serious austerity measures began in 2008, nearly 18 months ago. That's a very long time to react in financial market terms. At that time (Sep 30, 2008) Irish benchmark 10year yields were 4.69% but with swingeing public sector cuts they have risen to 4.82% as of yesterday. Yet bond yields have been falling elsewhere in Europe, and for countries that have engaged in huge reflationary packages, including Germany. There, Mrs Merkel's new government surprised everyone by engaging in repeated rounds of fiscal reflation (4% of GDP), and the response is that German yields have fallen from 4.04% to 3.13% over that time.
It could be argued that, since Germany provides the European bechmark for bonds, this is simply a 'flight to quality' in riskier times. But Belgium had exactly the same yields as Ireland in September 2008 (with a higher debt level offsetting a lower current deficit than Ireland). And its yield too has fallen to 3.73%, while it too has engaged in substantial reflation (and increased taxes on insurers and energy providers).
Some are keen to acribe all this to NAMA,and insist that austerity measures are 'working', even though officual forecasts for Ireland's deficit keep rising. But Belgium has the second biggest bank bailout in the Euro Area, and its yields have fallen. Likewise, for all Greece's problems, a bank bailout is not one of them.
NAMA is likely to be one of the largest transfers of wealth to the rich from the poor in modern history. But it is the government's austerity measures which are the force driving yields higher, completely contradicting the assertions of the government and its supporters.
...and did you see the fall in December retail sales figures?? Another nail in the coffin.
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