June 28th headline in the New York Times:
In Ireland, a Picture of the High Cost of Austerity
June 30th headline in the New York Times (from the Associated Press):
Ireland’s Economy Posts First Growth in Two Years
In the first story, which appeared on page A1, the reporter does some great editorializing in a front page “news” story:
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.
“When our public finance situation blew wide open, the dominant consideration was ensuring that there was international investor confidence in Ireland so we could continue to borrow,” said Alan Barrett, chief economist at the Economic and Social Research Institute of Ireland. “A lot of the argument was, ‘Let’s get this over with quickly.’ ”
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.
Re-read that last paragraph. Without that stimulus money their economy shrunk and remains in recession. And though there was “no sign of a rapid turnaround in sight” a mere two days later came the second story:
Ireland has resumed economic growth following eight straight quarters of sharp declines, the Central Statistics Office reported Wednesday.
The government agency said Ireland’s gross domestic product grew 2.7 percent in the first quarter of 2010. It was the first such rise since the latest quarter of 2007, when Ireland’s economy began to buckle amid a bursting bubble in construction and property speculation.
But GNP (national not domestic product) fell 0.5% in the first quarter. But the turnaround does appear to be in sight:
Increasingly economists are forecasting that Ireland’s G.D.P. and G.N.P. will record gains in 2010, setting aside earlier predictions of another year of declines. By contrast, Ireland’s G.D.P. fell 7.6 percent and its G.N.P. 10.7 percent in 2009, the biggest such falls in Irish economic history.
I know. It seems impossible. How can the economy recover without government stimulus? Let’s keep an eye on Ireland.