Skip to comments.Ireland is ECB's sacrifical lamb to satisfy German inflation demands
Posted on 04/11/2009 7:33:57 PM PDT by bruinbirdman
Put bluntly, Ireland is being forced to roll back the welfare state and tighten fiscal policy in the midst of a savage economic contraction in order to uphold the deflation orthodoxies of Europe's monetary union.
If Ireland still controlled the levers of economic policy, it would have slashed interest rates to near zero to prevent a property collapse from destroying the banking system.
The Irish central bank would be a founder member of the "money printing" club, leading the way towards quantitative easing a l'outrance.
Irish bond yields would not be soaring into the stratosphere. The central bank would be crushing the yields with a sledge-hammer, just as the Fed and the Bank of England are crushing yields on US Treasuries and gilts.
Dublin would be smiling quietly as the Irish exchange rate fell a third to reflect the reality of trade ties to Sterling and the dollar zone.
It would not be tossing away its low-tax Celtic model to scrape together a few tax farthings supposedly to stop the budget deficit exploding to 13pc of GDP this year, or 18pc says Barclays Capital. If the tax raises were designed to placate rating agencies, they made no difference. Fitch promptly booted Ireland from the AAA club anyway.
Above all, Ireland would not be the lone member of the OECD club to compound its disaster by slashing child benefit and youth unemployment along with everything else in last week's "budget from Hell".
Depression buffs will note the parallel with Britain's infamous budget in September 1931, when Phillip Snowden cut the dole and child allowance to uphold the deflation orthodoxies of the Gold Standard though in that case the flinty Pennine rather liked hair-shirts for their own sake.
Though few had any inkling at the time, Snowden's austerity drive
(Excerpt) Read more at telegraph.co.uk ...
>Put bluntly, Ireland is being forced to roll back the welfare state and tighten fiscal policy in the midst of a savage economic contraction in order to uphold the deflation orthodoxies of Europe’s monetary union.<
and we’re moving into a welfare state at high speed.
Not much wealth in natural resources in Ireland, and the economy was propped up on inflated real estate.