Irish experience: bond market nervousness over austerity could lead to downward spiral
Throughout the last six months, coalition Ministers have claimed that the reason for deeper, quicker cuts than the last Labour Government planned – or the Liberal Democrats told the electorate they wanted – was because of the need to restore confidence in the bond markets. So today’s further bad news for the Irish government, as the bond markets sent the cost of servicing Ireland’s deficit ever higher, is not good news. The lesson for Britain is worrying.
Bluntly, the bond market view is that the Irish Government’s austerity package will so restrict growth that they are only willing to fund the existing deficit at high rates of interest reflecting their lack of confidence that the economy will recover. That has persuaded the Irish government that the existing deficit needs to be cut even more, which will make the bond markets even more pessimistic about the Government’s ability to pay its debts. A downward spiral of bigger and bigger cuts seems the only prospect.
Ireland isn’t the UK, of course (which is one reason why commentators like Martin Wolf have argued the coalition is wrong to assume that cuts are necessary to reassure the bond markets). But in some ways, the only difference is that Ireland is further down the road that the UK may yet have to travel. Oh, and one other difference: Irish Prime Minister Brian Cowen is clinging on to power by only one or two votes in the Irish parliament – if he had a party like the Liberal Democrats padding out his majority, the Irish electorate would have no chance to halt the downward spiral that seems imminent.
Having contributed to our Rally against the Cuts on 19 October, the Irish Congress of Trade Unions has called a national demonstration on Saturday 27 November – they have the TUC”s full support.