On Thursday, the Irish government announced a new estimate for the cost of "fixing its banks," as The Wall Street Journal puts it: $68 billion, "or about a third of the country's economic output last year." Meanwhile, the Irish deficit will expand even further, despite severe budget cuts in other areas. Europe is worried: will Ireland need rescuing like Greece? Will the country be tempted to drop the euro altogether? Here's the latest.
Why This Is So Scary Ireland, explains Business Insider's Joe Weisenthal, "was the first to undertake aggressive action to bolster its banks and getting its public spending under control, long before everyone was using the PIIGS acronym. ... it's a good bet that Ireland won't be the last to double-dip into crisis, as austerity fails to improve the finances of countries like Portugal, Spain, and Greece."
- Is It Time to Change the Playbook? "If Greece was the black sheep of the continent, Ireland was the model pupil," agrees the editorial board of British publication The Independent. "But Ireland has not been rewarded for doing the 'right' thing." Maybe "the time has come to ask whether the Irish government is on the right path," and consider less of an "open-ended commitment" to "absorb[ing] all the pain resulting from the folly of Irish and European bankers."
- The Government Doesn't Have Much Choice, thinks The Atlantic's Megan McArdle, regarding bank bailouts--"Ireland is massively dependent on foreign credit." On the other hand, "can Ireland pull this out? I don't know. 25% of GDP is a
mind-boggling sum for a small country to spend just on supporting its
banks." If it sinks them, "they'll have to bail on the euro," she says--"not a happy thought."
- It's Going to Get Worse Throughout the global financial crisis, argue the editors of The Guardian, "no economy has been wrecked quite so brutally as Ireland's, ... its national income shrink[ing] 17% over the past three years--the deepest and swiftest contraction of any western country since the Great Depression." Because it is in the EU, "Ireland cannot unilaterally devalue its currency. Its only road back to competitiveness is to cut workers' living standards," explain the editors. That means that, "whatever [Irish finance minister Brian Lenihan] claims, the Irish economy has further to fall."
- Trying in Vain "Given the inherent fragility of financial forecasting in a scenario such as this," writes the Irish Times' Arthur Beesley, "it is impossible to predict whether anything the Government now says about [the staggering Anglo Irish Bank] can retrieve lost confidence." Ultimately, "judgment [on government deficit] will be seen in bond yields in the days and weeks ahead." Things aren't looking good: "Irish bond yields are now at similar levels to those that prevailed for Greece in the weeks before its slide into the arms of the EU and the IMF."
- 'Ireland Will Recover Quickly,' declares Danny McCoy, director-general at the Irish Business and Employers Confederation, from the pages of the Financial Times. While "Ireland has ... become a test bed for state recovery strategies," he doesn't seem to share others' sense of doom: "Following the rescue package, Ireland’s debt-to-GDP ratio is expected to peak at about 115 per cent, not exceptional in international terms." The question "is where growth will come from. Here the first half of 2010 has disappointed somewhat, but there are signs that substantial and sustained growth is emerging. Ultimately," he concludes, "it is Irish business and, foremost, our exporters that will lead recovery. The bond markets and other observers can be assured that competitive Irish companies are quietly doing just that."
- Good News, Bad News Irish Times economics editor Dan O'Brien clearly isn't ecstatic over the "staggering figures for bailing out the banks," but notes that "if there was some good news yesterday it was that the usually hypersensitive herd of bond market traders did not stampede in blind panic." In fact, bond rates fell slightly, "suggesting the Government was judged to be a safer bet to lend to yesterday than the day before, despite the blizzard of hardly auspicious news." That said, "as the probability of the State having to resort to external assistance is rising towards 50 per cent, it is worth beginning to consider what would happen in the event of a bailout." The loss of sovereignty involved in turning to the IMF and others isn't pretty to contemplate, and"everything possible must be done to avoid [it]," he writes. Luckily, the Irish government has already procured funding to last it through next summer, which gives it some time to troubleshoot.