Britannia Radio

Ireland is in serious trouble and is fighting the various calamities 
that have hit it with one hand tied behind its back.    If Ireland 
had not foolishly joined the euro when it did, it would not have had 
the runaway boom but neither would it have collapsed with no ability 
to take independent monetary changes to restore a balance.

I wish journalists would not parrot the excuse the Irish politicians 
make that it is due to competitive devaluation by Britain when the 
fact is that the dollar, euro, pound, yen etc all float freely and 
their values have nothing to do with 'devaluation' (which is a 
deliberate act of state) but an independent assessment by markets 
across the world.  What has happened is that the EURO has 
strengthened [because the ECB kept interest rates higher while ours 
fell) and any fall in the value of the pound is purely in relation to 
that fact.

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TELEGRAPH    8.4.09
1. Ireland imposes emergency cuts
Dublin has unveiled the harshest austerity measures in the history of 
the Irish Republic, raising taxes and slashing expenditure in an 
emergency budget despite mounting evidence that the country is 
already tipping into debt deflation.

By Ambrose Evans-Pritchard

Brian Lenihan, the finance minister, outlined a grim package of 1930s-
style retrenchment, slashing child benefit and allowances for 
jobseekers. Road and railways projects will be frozen. There will be 
a cull of junior ministers save costs. Two-thirds of the belt-
tightening will come from tax rises. A pension levy of 1pc - imposed 
in the face of bitter protests in January - will be doubled to 2pc.

"These measures will reduce all our living standards. I'm acutely 
aware of that," Mr Lehinan told the Dail. He said draconian measures 
were needed to stop the budget deficit spiralling to 13pc of GDP.

Ireland is facing a triple whammy of fiscal, monetary and exchange-
rate policies that are all too restrictive for the underlying needs 
of the Irish economy. There appears to be little that Dublin can do 
to change course under the constraints of Europe's monetary union.

In his funereal speech, Mr Lenihan said the economy would contract by 
7.7pc this year, the sharpest fall among the OECD club of rich 
nations. Consumer prices will tumble 4pc as the downturn tightens the 
deflation vice.

Fiscal tightening in these circumstances is a page from the 1930s, 
but Ireland has no choice. It already faces EU legal proceedings for 
breach of the Maastricht fiscal deficit limit of 3pc of GDP. Standard 
& Poor's stripped Ireland of its "AAA" rating last month and placed 
the country on negative watch, predicting that public debt would 
rocket to 70pc of GDP over the next four years. It was 33pc in 2008.

Ireland's Fine Gael finance spokesman Richard Bruton said the debt 
may reach 120pc of GDP in a return to the darkest days of the 1980s 
with the announcement yesterday of a new state agency to soak up 
?80bn (£72bn) in toxic debt from the banks. "The economy is on a 
perilous edge. Who is going to bail-out the taxpayer?" he said.

Ireland has held together remarkably well so far in this storm. 
Unions have agreed to accept pay freezes and even cuts for public 
employees, although 100,000 protesters poured on to Dublin's streets 
in February. But this calm may not last if people begin to see the 
current policies as self-defeating.

The slide into deflation threatens an economy struggling to cope with 
a property bust. Construction rose to 21pc of GDP in 2007, compared 
11pc in the US at the height of the sub-prime debacle. Household debt 
stands at 190pc of disposable income, one of the world's highest. 
Deflation increases the burden of the debt.

Julian Callow, Europe economist at Barclays Capital, said Ireland 
requires the same drastic mix of "quantitative easing" and 
devaluation under way in Britain.
"If Ireland was running its own monetary policy it would not be in 
its current state. The imbalances would never have built up to the 
same extent in the first place. They now need a 20pc devaluation to 
get out of this. If they try to cut wages it could lead to debt 
deflation, and that will unleash another set of financial problems," 
he said.

The country has been simultaneously hit by two "asymmetric shocks": 
the global banking crisis has punished Dublin's "Canary Dwarf" 
financial industry, worth nearly 10pc of GDP; and since half its 
exports go to Britain and the US - the highest of any eurozone state 
- it has suffered the full brunt of sterling's crash and the 
overvalued euro.

Shoppers are pouring into Ulster border to buy supplies, devastating 
the retail industry along the borders. Mr Lenihan has accused Britain 
of "beggar-thy-neighbour" tactics. [Our exchange rate is set by the 
markets and not by our Bank or government -cs]

The plunge is sterling is the sharpest since 1931. This has been 
immensely bad luck for Irish exporters, and could not have been forseen.

Mr Lenihan said he was appointing Sir Andrew Large, ex-Deputy 
Governor of the Bank of England, to oversee reforms of Ireland's 
regulatory structure. "The government is determined to restore 
confidence in our banking system," he said.
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2.Darling dare not feel smug about Ireland
Some countries are sliding at breakneck speed into the abyss, others 
are dropping rather less quickly.

By Richard Fletcher

The luckiest are still hanging on by their fingernails, although not, 
one suspects for much longer. As the renowned 1930s expert Barry 
Eichengreen points out, statistics bear out the theory that the 
global recession is even more severe than the early years of the 
Great Depression.

So although Alistair Darling can allow himself a feeling of relief to 
have avoided quite the same ordeal the Irish finance minister Brian 
Lenihan had to endure yesterday in his emergency budget, he would be 
foolish to indulge himself in schadenfreude.

In a fortnight's time Mr Darling will have to stand up in the Commons 
and announce further humiliating cuts to his economic forecasts, as 
well as raising the borrowing forecast even higher than when the UK 
was bailed out by the IMF in the 1970s. It may not nominally be an 
emergency Budget but you'd hardly have guessed judging by the picture 
it will paint of the economy.

Like Ireland, Britain is suffering a horrific housing slump and the 
threat of debt deflation. Unlike Ireland, the UK has been able to 
devalue its currency. [No it hasn't.  It has let it free for the 
markets to find its level -cs] But despite this there is little room 
left for further fiscal stimulus. The Chancellor must resist the 
temptation to ignore this.