New York Times columnist Paul Krugman has slammed Ireland’s decision to back the EU Fiscal Treaty – and predicted the death of the Euro within two years.

Liberal economist Krugman has rubbished the Fiscal Compact in an interview with Irish state broadcaster RTE.

He has described the Fiscal Treaty – designed to keep EU government spending in check – as a ‘bad idea’ and said he cannot understand why the Irish electorate endorsed it in the referendum.

Krugman told RTÉ Radio 1′s ‘The Business’: “Irish voters should have voted only to support what is right, rather than trying to appease the Bundesbank.”

He also predicted: “There is a fifty-fifty chance of the single currency disappearing within two years anyway, given the pressures arising in Greece.

“If the outgoing coalition of New Democracy and PASOK lose power after the second Greek general election, it is likely that Greece will reject its bailout conditions and then end up leaving the currency union almost immediately.

“Even if they manage to stay in it will only take about a year of falling economic growth to put the country at risk of leaving it anyway.

“That’s a move I do not believed the currency will survive.”

Krugman was also critical of the EU leadership and its handling of the Eurozone crisis.

He said: “If the ECB does not rise to the occasion, with very very large lending, the whole Eurozone breaks up in a matter of months.

“There are two inconceivable but equally likely, possibilities - that the ECB’s mandate will be expanded, in order to allow inflation to rise through a process of open-ended lending, or that

Germany will veto expanding the mandate and allowing the union to break up and fail.
“One of those two inconceivable things will have to happen.”

The celebrated economist also suggested the Fiscal Compact is not the solution to Europe’s current problems.

“It deals only with imaginary problems, not the real ones,” he said.

“Ireland had a budget surplus and a low debt. Spain had a budget surplus and a low debt. Both countries are struggling economically as a result of privatising their banking debts rather than through incurring too much sovereign debt.

“The Fiscal Compact would instead force countries to pursue austerity policies which Ireland had already shown to be ineffective.

“Two things were supposed to happen - Ireland was supposed to have an economic expansion, because austerity was supposed to create confidence and lead to economic recovery, and Ireland was supposed to raise confidence in the bond markets.

“Neither of those things have happened at all. The two occasions on which Ireland appeared to be on the cusp of growth, in early 2010 and late 2011, had turned out to be false dawns.

“This is a particularly good example of why austerity didn’t work. Ireland had been a good soldier in undertaking all the reforms asked of it, but still had not yet been able to engineer a lasting recovery.”