From Krugman's Column to the Front Page: Ireland's 'Austerity' Is Killing the Recovery

Liz Alderman wonders why Europe won't listen to Obama's wisdom: "The Group of 20 leaders [are] vowing to make deficit reduction the top priority despite warnings from President Obama that too much austerity could choke a global recovery and warnings from a few economists about the possibility of a much sharper 1930s style downturn."
Want to stay on the Times' good side? Then never, ever, try to cut government spending. Tuesday's off-lead story by Liz Alderman, business editor for the Times' international edition, hailed from not-so-merry Dublin with a news story with a highly opiionated take on the country's spending cuts: "Ireland Paying A High Price For Austerity - As Europe Seeks Cuts, a Cautionary Tale."

As Europe's major economies focus on belt-tightening, they are following the path of Ireland. But the once thriving nation is struggling, with no sign of a rapid turnaround in sight.

Nearly two years ago, an economic collapse forced Ireland to cut public spending and raise taxes, the type of austerity measures that financial markets are now pressing on most advanced industrial nations.

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Rather than being rewarded for its actions, though, Ireland is being penalized. Its downturn has certainly been sharper than if the government had spent more to keep people working. Lacking stimulus money, the Irish economy shrank 7.1 percent last year and remains in recession.

Joblessness in this country of 4.5 million is above 13 percent, and the ranks of the long-term unemployed - those out of work for a year or more - have more than doubled, to 5.3 percent.

Alderman wonders why Europe won't listen to Obama (who presides over an unemployment rate of 9.7%).

Despite its strenuous efforts, Ireland has been thrust into the same ignominious category as Portugal, Italy, Greece and Spain. It now pays a hefty three percentage points more than Germany on its benchmark bonds, in part because investors fear that the austerity program, by retarding growth and so far failing to reduce borrowing, will make it harder for Dublin to pay its bills rather than easier.

Other European nations, including Britain and Germany, are following Ireland's lead, arguing that the only way to restore growth is to convince investors and their own people that government borrowing will shrink.

The Group of 20 leaders set that in writing this weekend, vowing to make deficit reduction the top priority despite warnings from President Obama that too much austerity could choke a global recovery and warnings from a few economists about the possibility of a much sharper 1930s style downturn.

Alderman concluded with this warning:

While no one is marching in the streets, the Irish do have a tipping point: Prime Minister Cowen, whose popularity has plummeted, agreed last week not to cut public wages again in the next budget. Many voters, having experienced the pain of austerity, are expected to express their anger in the 2012 elections.

"Then," said Paul Sweeney, economic adviser to the Irish Congress of Trade Unions, "the Irish for once are going to have their revenge served cold."

Pro-spending economist and partisan columnist Paul Krugman praised Alderman's story on his nytimes.com blog early Tuesday morning:

Liz Alderman offers an excellent, if depressing, portrait of Ireland in austerity. To fully appreciate its significance, you want to juxtapose it with what the apostles of austerity are saying.

Krugman made the same point in his Monday column, which argued that "The Third Depression" is coming to America, and it will be the fault of conservatives. He invoked the Irish example to argue austerity was dangerous:

Why the wrong turn in policy? The hard-liners often invoke the troubles facing Greece and other nations around the edges of Europe to justify their actions. And it's true that bond investors have turned on governments with intractable deficits. But there is no evidence that short-run fiscal austerity in the face of a depressed economy reassures investors. On the contrary: Greece has agreed to harsh austerity, only to find its risk spreads growing ever wider; Ireland has imposed savage cuts in public spending, only to be treated by the markets as a worse risk than Spain, which has been far more reluctant to take the hard-liners' medicine.

Reporter Sarah Lyall also went after Ireland's austerity measures in similar harsh fashion in December:

The government added to the general misery in this shellshocked city by releasing its harshest budget in generations.