Austerity has failed, eurozone on brink as world crisis rages
Expert calls for Euro cord to be cut as world financial crisis rages
Published 07/08/2011 | 05:00
MINISTER for Finance, Michael Noonan, yesterday sought to 'spin' what he called "positive developments for Ireland" arising out of the greatest financial crisis in the history of the world.
But as the minister, who insists he is "most definitely not on holiday", tried to present an upside for Ireland to the global disaster, the austerity policies embraced by the Government, and Europe have been deemed an absolute failure.
"They simply aren't working," one expert said.
Professor Ray Kinsella also said that Ireland should now withdraw from the eurozone -- which many political and financial analysts worldwide believe to be at "serious risk" of collapse.
These experts also say that the only alternative to a eurozone break-up is closer fiscal union which, they predict, will herald even more severe austerity measures.
The more the crisis develops, the more it has become evident that there has been a failure of political leadership at the heart of Europe and worldwide.
ANALYSIS PAGES 16, 18, 19, 22, 30
Last night, UCD professor Morgan Kelly predicted that Ireland's debt will reach €240-€250bn by 2015 - compared to the Government estimate of €200bn.
The main reasons for the escalating debt mountain is the losses of the Irish banks, which he estimates at up to €100bn. (See page 2.)
In a comment which reflects the view of citizens in Ireland and Europe, former Italian Prime Minister, Romano Prodi has said: "We don't know who is in charge."
Professor Kinsella of the Michael Smurfit Graduate School of Business said: "The economic forecasts on which Ireland's budgetary policies -- and the bailout -- have been constructed have now been shown to be wholly wrong.
"So, too, have the policies. They simply aren't working. All there is to show for the sacrifices are a sovereign debt rating of junk status, a shrinkage of employment of 15 per cent and 'closed' and 'for sale' notices across the country.
"This is not leadership -- it borders on the wilful to adhere to policies that are demonstrably not working and that have mired the eurozone in a crisis from which it is seemingly incapable of escaping. Ireland needs to leave."
Mr Noonan, however, who is in Limerick this weekend, remains intent to focus on what he sees as the positives -- even as it became evident yesterday that the global financial markets will re-open on Monday to a changed reality.
Standard & Poor's downgraded the US credit rating by one notch on Friday.
The US rate was cut from from triple A to double A plus -- a move which was deemed unthinkable just weeks ago.
While the US downgrade may have been factored, to an extent, into events which caused carnage on the financial markets last week, the fact that it has now happened is likely to cause further investor flight this week from equity markets to perceived safe havens, such as hedge funds and gold, which pay no dividends.
Some of the immediate impact may be forestalled, however, only by the fact that no other country is able and willing to replace the US at the core of the global system.
The historic downgrade not only highlights the weakened fiscal stature of the world's most powerful country, it may also be followed by a downgrade of other triple A countries, possibly France.
If that were to happen, it could complicate the already fragile efforts by Europe to rescue peripheral countries, most immediately Italy and Spain, after Greece, Portugal and Ireland.
In the face of these unprecedented and entirely unpredictable events, Mr Noonan remains determined to stick with a script as prepared at EU level.
The Finance Minister told the Sunday Independent: "It is a positive that action is being taken and that EU leaders are focussing on the challenges that must be addressed. It has been of note that as the crisis has developed, there have been positive developments for Ireland, namely the successful private sector investment in Bank of Ireland, the reducing spreads in our Government bonds, and Standard and Poor's recent assessment."
These positives, however, remain largely irrelevant. Ireland will not return to the bond market until 2013 at the earliest and the S&P's assessment reflects only a belief that the public finances here have stabilised somewhat.
In the Sunday Independent today, the economist, Colm McCarthy, says that while both the Bank of Ireland and AIB have been recapitalised and "should be" more secure for deposits, "they need to shrink their balance sheets further and cut costs."
He writes: "These two banks also need to restore public confidence and resume their role as distributors of credit."
Political leaders across Europe left en masse on holiday last week as the debt crisis worsened to a position not experienced since the collapse of Lehman Brothers in 2008.
Across Europe, leaders are on vacation: Angela Merkel is in the Italian Dolomites, Nicholas Sarkozy is on the French Riveria, Silvio Berlusconi is in a villa outside Milan, and Enda Kenny is thought to be in Kerry.
The flight of these and other leaders, ministers and many officials prompted Mr Prodi to say: "We don't know who is in charge."
Mr Noonan, however, was anxious to portray an impression that he and his officials were on top of the crisis.
"I and my officials are carefully monitoring the situation in the financial markets. We are in constant contact with our EU partners and the EU authorities regarding the emerging situation," he said.
"The Government will ensure that any measures will be to the benefit of Ireland as an EU member."