Paul Krugman is back banging a familiar drum: austerity is not a good idea. Anywhere. As always, Ireland is one of his favourite examples:
[V]irtuous Ireland never did better than malingering Spain. And now, Ireland’s risk premium has exploded, here; Spain’s not so much, here.
Of course, it’s not at all a clean experiment; Ireland’s banks were arguably second only to Iceland’s in their irresponsibility, and the Irish government’s blanket guarantee has exposed it to huge losses. But bear in mind that when Ireland seemed, briefly, to have regained the trust of the markets, this was touted as proof that austerity will be rewarded. Funny about that.
As always, I’m not sure what Krugman’s alternative is. He’s a brilliant economist and I’m not but, in the end, Ireland’s problem has been that it ran out of money. This year Ireland is borrowing nearly €20bn to cover the gap between revenues and expenditure.
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