Does the Irish bailout teach the UK anything about austerity measures?

Ireland has bowed to the inevitable and accepted the necessity of a bailout.   There will be a lot written about the causes and blame for the sorry state of affairs.  Take your pick:  Reckless bank lending, reckless corporate and individual borrowing, reckless State spending, reckless lack of regulation, etc.   Folk will write very studious books on these events.  The headline conclusions will be the same old broad themes they have been after every financial crisis in history.  Initially people will earnestly take on board these lessons and kick off the new economic cycle.  The age old truth that the ‘collective memory’ is shorter than the ‘economic cycle’ will then slowly kick-in.   As time passes people will forget the lessons and again rationalise that the laws of economics ‘are different now’.  The whole thing will rise and collapse again – probably more than once or twice in our lifetimes.   It was ever thus.

Back in the here-and-now there are political points being scored as the Irish brown stuff hits the whirly thing.   An argument gaining currency amongst leftist commentators is that the Irish humiliation shows that austerity measures (read government cuts) do not work.  There is one example here.   This needs to be taken head-on.

At first pass there does sound a clear logic to their argument.  Ireland hit breaking point first so went first with austerity measures .  The measures manifestly haven’t done the job given the need for this bail-out.  Therefore, ‘logically’, austerity measures do not work.   Therefore, ‘logically’, they would have been better to keep pumping more state money around the economy to avoid this final meltdown.  Therefore, ‘logically’, the UK must take note and course correct.

It is a compelling narrative.  It is also dangerous.  If you  stop and think about it this argument  is no more or less a ‘logical’  as saying “A man was in a hole, he stopped digging, he found he was still in a hole, therefore he should have kept digging”.

We cannot let their spin distract us from the fundamental issue:  the nation was spending four pounds for every three that it brought in.   We have an unsustainable debt and government spending polices were making it worse.  You don’t solve a problem and delaying the inevitable for longer.  When you have a bubble – sadly you have to let it burst.  Pouring more soap into it doesn’t let it down gently – it just makes for a bigger bang when it comes.



Filed under Centre Right, Economy, Politics, UK, UK Politics

6 responses to “Does the Irish bailout teach the UK anything about austerity measures?

  1. Are you looking for fissures in the Coalition glacier that aren’t there?

    Ireland has flattered to deceive for decades – check where its funding has come from since the 1970’s. The UK is entirely different.

    • Not so much looking for fissures that aren’t there – more trying to head off those who are trying to cause them. The whole “See, Austerity doesn’t work” thing is getting boring from those peddling it.

      • My view is that the last government span us a yarn. Labour and their Government policies failed miserably. Now, their remnants need to be realistic.

        I comfortable with the coalition approach to governance and find distasteful Labour being ignorant of how much is risked for the UK in their paymasters and activists hoping to bring the country to its knee’s as a penalty for fiscal tightening and welfare reform.

  2. Duncan Innes

    Ireland is in this situation because their banks used faulty mechanisms to base their lending decisions on. The austerity programme failed to get them out of the hole – it is yet to proved that cooling the economy with higher taxes and lower spending can engender a more innovative productive society. Austerity programmes are aimed at markets, to try to keep bond yields low. Ireland’s latest budget and previous attempts to save money have not convinced the markets, and therefore they cannot borrow at sustainable interest rates. It is therefore the imperative that the Tories maintain market confidence so that the government can keep down interest payments on its massive borrowings.

  3. Nonns

    Most of the QE fans I read have not been saying spend spend spend for ever more. Perhaps an alternative to your man is in a hole methodology would be …

    When a accident victim comes through the door leaking blood in quantity do you say well you’re wasting it and not give him more or do you attempt to stabilize the patient and then find ways to boost his own blood production.

    The concept of the quick fix through massive austerity in the context of your hole digging example is more like

    You’re in a hole and you’ve been digging. You think oh my lord what have I done and then some helpful individual comes along and pours concrete into the hole whilst you’re still in it (superficially helpful but practically murderous) The mafia were good at this and it tended not to help the digger!

    Its all funny money. We are still sitting on debts from wars which were fought in the 1700’s. I don’t know about you but I haven’t altered my behavior one jot in my day to day existence whilst worrying about these debts.

    Surely a more sensible approach to the whole problem would be initial massive QE followed by heavier regulation whilst root causes are tackled (which they’re not being). Followed by a much more gentle approach to austerity. Why risk killing the patient.

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