Economics

Could it be that Ireland has passed through the worst of the storm? Writig in the Financial Times yesterday David Vines and Max Watson argue that maybe, just maybe, it has. [T]he first and most important thing about Ireland is that it is swiftly restoring its competitive edge. Indeed it is moving rapidly towards a sizeable current account surplus – in a range of 3 to 4 per cent of gross domestic product. Of course, recession has also played a role in turning external accounts around, but a steady uptrend in exports has been underway for some time. The second element is that Ireland’s net public debt will probably peak at somewhere around 110 per cent of GDP.

Today's boxing theme continues: This is excellent. Perhaps someone can do something similar for George Osborne and Ed Balls? The first fight, if you missed it, is here.

Next time you hear a Labour politician arguing that the markets are punishing Ireland despite its austerity drive (and therefore Britain should not rush to cut its own deficit) you might kindly point out that, because of the horrors at Anglo Irish and elsewhere, you can certainly argue that there hasn't actually been an Irish austerity drive: In a statement, Mr. Lenihan conceded that the bank bailout would have an immediate and dire effect on Ireland’s budget deficit, pushing it up to an extraordinary 32 percent of G.D.P. Taking out the bank costs, Ireland’s deficit is expected to be around 11 percent, despite two years of an austerity drive.

Thursday is an important day for Ireland and, in the end, another reminder that Ireland's economic woes and the measures taken to alleviate them don't offer much of an example for other countries or their governments. The Irish government is going to have to announce its plan for bailing out (or not) Anglo Irish Bank's bondholders. None of the options - outlined by the FT here - seem attractive. The political cost of meeting the bond market's hopes will be severe; the economic cost of not doing so could be equally horrendous.

As Iain Martin notes, it didn't take Labour long to welcome the news that the Irish economy shrank by 1.2% last quarter*. Welcome isn't quite how they put it but since Irish economic pain is a weapon with which the opposition can attack the coalition, Irish misery is a price worth paying so Ed Balls can feel vindicated. At least those who think fiscal restraint is needed at times such as these and who were perhaps too quick to welcome last quarter's healthy growth in Ireland can say they want to see Ireland do well. In truth, both sides of the British (and for that matter American) debate are too fond of treating the Irish as though they were nothing more than tiny lab rats subjected to a series of interesting economic experiments.

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.