There were two developments that were particularly positive
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While Ireland has received a number of glowing plaudits from international organisations and commentators for the Government’s commitment to tough austerity measures aimed at reining in rising levels of public debt, a less-than-positive assessment of the benefits of these cuts is contained in a piece in the global edition of the New York Times today.
The article in the International Herald Tribune, which also appears on the front page of the New York Times website today, features a picture of the stalled Liam Carroll development on the north quays in Dublin, which was due to be Anglo Irish Bank’s new headquarters.
The piece runs with the headline: ‘In Ireland, a Picture of the High Cost of Austerity’ and says that despite the tough austerity measures Ireland has implemented, the country is being penalised and not rewarded for its actions.
“Despite its strenuous efforts, Ireland has been thrust into the same ignominious category as Portugal, Italy, Greece and Spain. It now pays a hefty three percentage points more than Germany on its benchmark bonds, in part because investors fear that the austerity program, by retarding growth and so far failing to reduce borrowing, will make it harder for Dublin to pay its bills rather than easier."
The article also quotes Harvard professor and former chief economist at the IMF Kenneth Rogoff as saying: “If you want to escape default, the Irish path is the only way to go. But the Ireland experience points to the profound challenges that the current strategy implies.”
According to the International Herald Tribune, Ireland, described as “a once-thriving nation”, is now struggling, “with no sign of a rapid turnaround in sight”.
World at start of third depression
Meanwhile, Ireland's experience with austerity cuts was referenced in another piece in the New York Times recently by leading economist Paul Krugman.
Krugman says in his column that Ireland has imposed “savage” cuts in public spending, “only to be treated by the markets as a worse risk than Spain, which has been far more reluctant to take the hard-liners’ medicine”.
“It’s almost as if the financial markets understand what policy-makers seemingly don’t: that while long-term fiscal responsibility is important, slashing spending in the midst of a depression, which deepens that depression and paves the way for deflation, is actually self-defeating.”
According to Krugman, the world is now likely in the early stages of a third depression, which will be characterised by a failure of policy.
“Around the world — most recently at last weekend’s deeply discouraging G20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.”
Krugman says while this third depression will look more like the Long Depression than the much more severe Great Depression, “the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense”.
Praise from Paul Volcker
These views on Ireland’s austerity cuts lie in contrast to that expressed by former US Federal Reserve Chairman Paul Volcker, who praised Ireland for having a realistic and proactive view of its economic crisis in a recent article in the New York Review of Books.
According to Volcker, while there is “a lot of grumbling” in Ireland, “about the banks in particular”, he had come away with the impression that people here have an understanding that the boom had gotten out of hand and that they now had a determination “to do something about the situation”.
“The urgent need to get back on a sustainable budgetary and economic track is well understood,” he noted, contrasting this outlook to that he claimed is held by the US, which does not share “the same sense of urgency” about its own economic situation.