The new reality in Europe following the French and Greek elections is that the result of the upcoming Irish referendum on the European rescue package is now in significant doubt.
Irish voters have essentially been given the go ahead by the French and Greek results to vote against the austerity treaty, and chances are they will probably do so.
That may be no bad thing. Germany has long lorded it over the other countries in Europe, and they have been insistent on austerity. But the policy has simply not worked, and European countries including Britain and Ireland are slipping back into deep recession.
Nobel economics winner Paul Krugman in Monday’s New York Times wrote that despite the fact that Ireland is the poster boy for austerity policies in Europe, the policy has turned out to be a disaster for them.
Krugman wrote, “Consider the case of Ireland, which has been a good soldier in this crisis, imposing ever-harsher austerity in an attempt to win back the favor of the bond markets.
“According to the prevailing orthodoxy, this should work. In fact, the will to believe is so strong that members of Europe’s policy elite keep proclaiming that Irish austerity has indeed worked, that the Irish economy has begun to recover.
“But it hasn’t. And although you’d never know it from much of the press coverage, Irish borrowing costs remain much higher than those of Spain or Italy, let alone Germany.”
The impact of the austerity on the ground has been very evident, with massive protests gathering about new taxes that the Irish government is imposing, yet somehow expecting economic growth as a result.
It seems clear now that countries such as Greece and Portugal and perhaps Ireland may be forced to leave the Euro altogether if the Germans insist on repayment of debts and austerity.
Only by having their own currencies and being allowed to devalue can the poorer countries in Europe ever hope to clean up their books and get back on a solid footing.
The idea of Ireland going back to the punt may still be a ways off, but the results from France and Greece last weekend made it clear that the rest of Europe has enough of German hegemony on this issue.
It may be only a matter of time before drastic new policies will be implemented.