Ireland, as the poster boy for austerity policies in Europe, is a complete failure, says Paul Krugman, New York Times columnist and Nobel Economics prize winner.
Writing after austerity candidates had lost in elections in France and Greece, Krugman stated “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. “
Krugman says the European election results shows that voters are wiser than the leaders who had insisted on austerity as the only way out.
Iceland, not Ireland, points the way forward Krugman writes.
“As a counterpoint to Ireland’s sad story, consider the case of Iceland, which was ground zero for the financial crisis but was able to respond by devaluing its currency, the krona (and also had the courage to let its banks fail and default on their debts). Sure enough, Iceland is experiencing the recovery Ireland was supposed to have, but hasn’t.”
Krugman says breaking up the Euro zone would be highly disruptive but that “Europe’s crisis countries might be able to emulate Germany’s success if they were experiencing a bit of an inflationary boom.”
“It’s an argument for much more expansionary policies elsewhere, and in particular for the European Central Bank to drop its obsession with inflation and focus on growth.” Krugman concludes.