There is no certainty the markets will fund our future borrowing
Why were alternatives to plunging the nation into long-term penury not pursued, asks Colm McCarthy
Starting in late 2008 when the financial crisis finally erupted in Ireland, government spokes-persons have persistently stuck to the line that economic turnaround is imminent, and that when it comes the problems with the banks and with the public finances will become more manageable. No evidence in support of this rosy prognosis is available, but happily none is required, since it is a profession of faith.
Since the beginning of May, European policy-makers have been reminded that the broader eurozone financial crisis is also far from over. The cost of government borrowing in Spain and Italy, both too-big-to-fail eurozone members, has been rising again, and the likelihood of a further dramatic intervention to save the euro has been rising with it. Spain and Italy are not in EU/IMF rescue programmes and must meet their substantial financing needs in the markets. The yield on Spanish 10-year bonds reached 4.91 per cent on Friday, up from just over four per cent early in May. Orange lights will begin to flash if this number breaches five per cent.
Four countries are in bailout – Greece, Ireland, Portugal and Cyprus. Greece will struggle to avoid a further debt default (the IMF has admitted the initial Greek 'rescue' of May 2010 was botched), while bond yields in Portugal have jumped again towards unsustainable levels. The mistakes in Greece have been repeated, with some novel twists, in Cyprus. If the planned Irish exit from bailout at year's end is jeopardised, the star pupil in bailout class will have flunked the exam.