Friday, September 24, 2010

The Euro Mess

Ireland did everything the EU asked of it. It slashed spending, it cut jobs, it cut public sector wages. Ireland was praised for its 'courage' in implementing austere fiscal policy which would reduce the deficit and 'improve confidence' in the economy.

Apparantely, some people are now surprised, that Ireland is now facing a shocking collapse in GDP. The Irish economy shrank by 1.2pc in the three months between April and June compared (an annual decline of 4.8%)

Has no one in the EU heard about Herbert Hoover and the initial response to the Great Depression?

Of course, being in the Euro makes it even more difficult because as well as fiscal retrenchment there is no possibility of exchange rate devaluation or loosening of monetary policy to help the economy.

So the EU response has been to
  • precipitate a second recession
  • Cause interest rates on Irish bonds to rise to a record 6.3%
  • leave possibility of debt default.
The talk is of Ireland implementing further cuts or a partial debt default. But, there is depressingly little talk of the ECB implementing quantitative easing, which is what they need to do.

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