Last spring Ireland was held up as the model of what countries should be doing - engaging in an austerity package in the face of a deep recession. They were doing this to stay within the bounds of the euro-zone treaties that limit deficits and debt. It was clear that the budget cuts and tax increases would be painful. Still, it was seen as the responsible thing to do. During the Greek crisis last spring, the Greeks were constantly reminded that the Irish were doing the noble thing. Even more oddly, given the current state of things, some people said that austerity would cause economic growth.
Now, it looks like Ireland will be the next point of the euro-crisis. The Irish deficit has been sky-rocketing and this has been compounded by rising interest rates. Clearly, Ireland is in trouble. Two charts from the Wall Street Journal get to the crisis. The first shows the history of the banking crisis in Ireland - it may be, as Simon Johnson has said, that Ireland's banks are "too big to save" (as opposed to the American banks which are said to be "too big to fail". The second chart shows Irish deficit compared to the rest of the euro-zone average.
This is about t
o get ugly.
