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
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Guru Careers: Account Manager / Membership Manager

£35 - 38k + Benefits & Bonus: Guru Careers: We are seeking an Account Manager ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

Guru Careers: Tax Manager / Accountant

£35 - £50k DOE: Guru Careers: A Tax Manager / Accountant (ACA / CA / CTA) is n...

Ashdown Group: Contracts Executive - City of London

£35000 - £37000 per annum + benefits: Ashdown Group: Contracts Executive - Cit...

Day In a Page

Giants Club: After wholesale butchery of Idi Amin's regime, Uganda’s giants flourish once again

Uganda's giants are flourishing once again

After the wholesale butchery of Idi Amin's regime, elephant populations are finally recovering
The London: After 350 years, the riddle of Britain's exploding fleet is finally solved

After 350 years, the riddle of Britain's exploding fleet is finally solved

Archaeologists will recover a crucial item from the wreck of the London which could help shed more light on what happened in the vessel's final seconds
Airbus has patented a jet that could fly from London to New York in one hour

Airbus has patented a jet that could fly from London to New York in one hour

The invention involves turbojets and ramjets - a type of jet engine - and a rocket motor
10 best sun creams for kids

10 best sun creams for kids

Protect delicate and sensitive skin with products specially formulated for little ones
Tate Sensorium: New exhibition at Tate Britain invites art lovers to taste, smell and hear art

Tate Sensorium

New exhibition at Tate Britain invites art lovers to taste, smell and hear art
Ashes 2015: Nice guy Steven Finn is making up for lost time – and quickly

Nice guy Finn is making up for lost time – and quickly

He was man-of-the-match in the third Test following his recall to the England side
Ashes 2015: Remember Ashton Agar? The No 11 that nearly toppled England

Remember Ashton Agar?

The No 11 that nearly toppled England
Turkey-Kurdish conflict: Obama's deal with Ankara is a betrayal of Syrian Kurds and may not even weaken Isis

US betrayal of old ally brings limited reward

Since the accord, the Turks have only waged war on Kurds while no US bomber has used Incirlik airbase, says Patrick Cockburn
VIPs gather for opening of second Suez Canal - but doubts linger over security

'A gift from Egypt to the rest of the world'

VIPs gather for opening of second Suez Canal - but is it really needed?
Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Fashion editor, Alexander Fury, applauds a man who clearly has more important things on his mind
The male menopause and intimations of mortality

Aches, pains and an inkling of mortality

So the male menopause is real, they say, but what would the Victorians, 'old' at 30, think of that, asks DJ Taylor
Man Booker Prize 2015: Anna Smaill - How can I possibly be on the list with these writers I have idolised?

'How can I possibly be on the list with these writers I have idolised?'

Man Booker Prize nominee Anna Smaill on the rise of Kiwi lit
Bettany Hughes interview: The historian on how Socrates would have solved Greece's problems

Bettany Hughes interview

The historian on how Socrates would have solved Greece's problems
Art of the state: Pyongyang propaganda posters to be exhibited in China

Art of the state

Pyongyang propaganda posters to be exhibited in China
Mildreds and Vanilla Black have given vegetarian food a makeover in new cookbooks

Vegetarian food gets a makeover

Long-time vegetarian Holly Williams tries to recreate some of the inventive recipes in Mildreds and Vanilla Black's new cookbooks