Irish response to crisis will make economy stall

Senior economist accuses government of trying to 'sloganeer' the country back to life

Ireland's most high-profile economist has claimed the country's response to its financial crisis is "like watching a slow car crash".

The economy contracted in the second quarter while a bond auction on Tuesday revealed how expensive the country's runaway deficit has become. Ireland's Central Statistics Office said GDP had dropped by 1.2 per cent between April and June.

The news added weight to the growing clamour within Ireland for the government to stop its harsh fiscal tightening measures and focus on increasing liquidity and stimulating the flagging economy.

Economist David McWilliams, who is credited with being the first to predict Ireland's financial problems, said: "For me as an Irish citizen, this is like watching a slow car crash. The more they cut, the more the economy will continue to stagnate. The Irish government seems to think they can emote the economy to life by sloganeering, but people who don't understand economics have taken over."

Pressure piled up further last Tuesday when the Irish government borrowed nearly $2bn, but at an interest rate more than 4 percentage points dearer than German treasury bonds – Europe's benchmark. This is the highest "risk premium" since the euro was introduced in 1999. It shows how high international investors consider the risk of an Irish sovereign default because of the government's inability to detail the full cost of its banking bail-out, which could be as much as €50bn.

"The Irish government is using the bond markets as a financial skip into which it wants to put all the financial sins of the politicians. But the bond markets are saying either you can have your banking bail out or your welfare state – you choose."

However, Ireland is being applauded internationally for its efforts to rebalance its public finances and reduce its borrowing, currently at €100bn, to 3 per cent of its GDP by 2014.

Jim Power, an economist at Friends First, said Ireland now had a 4 per cent annual cost of funding its debt. "Raising €1.5bn when you owe a total of €100bn is a drop in the ocean," he said. "If this sort of bond yield persists, a lot of Irish debt as it matures is going to have to be refinanced as this higher rate and will be a real burden on the economy."

Ireland is not facing a "double dip" because it has never emerged from recession, he said. Its first quarter 2.2 per cent growth was an abberation, driven by activity in the multinational sectors. As people raise their savings level and exports slow, the shocking drop in GDP in the second quarter could continue.

"There is considerable fiscal pain for Ireland for the foreseeable future," said Mr Power. "We have to be extremely mindful of what the international bond markets are telling us. Ireland has been spending too much and taking in too little taxes and we have to rebalance the public finances."

Start your day with The Independent, sign up for daily news emails
Sport
sportSo, how closely were you paying attention during 2014?
Arts and Entertainment
Dennis speaks to his French teacher
tvThe Boy in the Dress, TV review
News
One father who couldn't get One Direction tickets for his daughters phoned in a fake bomb threat and served eight months in a federal prison
people... (and one very unlucky giraffe)
Arts and Entertainment
Joel Edgerton, John Turturro and Christian Bale in Exodus: Gods and Kings
film
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
News
i100
Arts and Entertainment
The Plaza Theatre in Atlanta, Georgia was one of the 300 US cinemas screening
filmTim Walker settles down to watch the controversial gross-out satire
Arts and Entertainment
Amy Adams and Christoph Waltz in Tim Burton's Big Eyes
film reviewThis is Tim Burton’s most intimate and subtle film for a decade
Life and Style
Mark's crab tarts are just the right size
food + drinkMark Hix cooks up some snacks that pack a punch
Arts and Entertainment
Jack O'Connell stars as Louis Zamperini in Angelina Jolie's Unbroken
film review... even if Jack O'Connell is excellent
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Selby Jennings: VP/SVP Credit Quant- NY- Investment Bank

Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...

Selby Jennings: Quantitative Research | Equity | New York

Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...

Selby Jennings: SVP Model Validation

Not specified: Selby Jennings: SVP Model Validation This top tiered investment...

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

Day In a Page

Aren’t you glad you didn’t say that? The worst wince-and-look-away quotes of the year

Aren’t you glad you didn’t say that?

The worst wince-and-look-away quotes of the year
Hollande's vanity project is on a high-speed track to the middle of nowhere

Vanity project on a high-speed track to nowhere

France’s TGV network has become mired in controversy
Sports Quiz of the Year

Sports Quiz of the Year

So, how closely were you paying attention during 2014?
Alexander Armstrong on insulting Mary Berry, his love of 'Bargain Hunt', and life as a llama farmer

Alexander Armstrong on insulting Mary Berry and his love of 'Bargain Hunt'

From Armstrong and Miller to Pointless
Sanchez helps Gunners hold on after Giroud's moment of madness

Sanchez helps Gunners hold on

Olivier Giroud's moment of madness nearly costs them
A Christmas without hope: Fears grow in Gaza that the conflict with Israel will soon reignite

Christmas without hope

Gaza fears grow that conflict with Israel will soon reignite
After 150 years, you can finally visit the grisliest museum in the country

The 'Black Museum'

After 150 years, you can finally visit Britain's grisliest museum
No ho-ho-hos with Nick Frost's badass Santa

No ho-ho-hos with Nick Frost's badass Santa

Doctor Who Christmas Special TV review
Chilly Christmas: Swimmers take festive dip for charity

Chilly Christmas

Swimmers dive into freezing British waters for charity
Veterans' hostel 'overwhelmed by kindness' for festive dinner

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect