Friday, August 27, 2010

Compare and contrast

Your friendly neighbourhood Nobel-winning economist:
A couple of months back I asked, does fiscal austerity actually reassure markets? I noted there the curious case of Ireland, which embraced savage austerity early on; quite a few press reports declared that this had gained it the confidence of markets, but the actual numbers said otherwise. And I noted the contrast with Spain, which has been relatively slow and reluctant to embrace austerity, but has been treated no worse by investors.
(S)ince austerians were claiming bond market approval as a sign of its policy success, it is worth pointing out that dutiful Ireland looks as if it’s entering a runaway debt spiral, while malingering Spain is looking considerably better.
Your less-friendly neighbourhood Finance Minister:
According to a report in today’s Times of London, our finance minister, Jim Flaherty, has now waded into the dispute. Behind the paper’s pay-wall, Mr. Flaherty is reported to have “dismissed the downgrade, instead praising the Irish Government’s package of austerity measures.”
So apparently we too can look forward to a great deal of pain for its own sake - at least as long as our finance minister is taking a lead role in playing to imaginary confidence fairies rather than acknowledging that gratuitous government-slashing can have serious consequences.

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