Ireland: closing for business

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As the FT notes:

Ireland’s central bank governor has indicated that Brian Cowen’s government needs to go even further in cutting the forthcoming budget if it wants to restore international confidence in its management of the economy.

Patrick Honohan’s comments, at a conference in Dublin on Monday, reflect mounting market concern at Ireland’s deficit, the largest in the European Union.

Of course Ireland could cut more, but it might as well say it’s going out of business in that case. As Paul Sweeny of the Irish Congress of Trade Unions said in reaction:

We’re already seeing increasing unemployment, reduced government revenues and companies going out of business. “he government is going too far on the cuts. To call for more would push us into a deflationary spiral.

He’s right.

And to a certain degree Ciaran O’Hagan, head of rates research at Soci?©t?© G?©n?©rale in Paris was right too when arguing that rather than just slashing spending, Ireland’s government would bolster creditworthiness by announcing structural reforms, such as legislating for increases in the retirement age, introducing a property tax and adopting an independent means of fiscal oversight, such as the Office for Budget Responsibility in the UK.

I’m not sure about all the prescriptions, but he’s right that cutting is irrelevant now — the issue is showing that there is a plan to get out of the mess Ireland’s got into. Unless there’s such a plan nothing will work. And deflation and economic collapse will surely follow.

But I see no sign of that from the current government. No wonder emigration is rising. And that’s sad.

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