International economics guru, Sanchia Berg, was on the BBC this morning to entertain us with an “analysis” of Ireland’s economic woes. At first I was curious as to why the BBC seemed so interested in the fact that Moody’s (They never saw the recession coming, why should we pay much attention to them now?) had downrated Irish credit worthiness – then it became clear. You see Ireland has actually TRIED to deal with out of control public sector spending by imposing wage cuts and the like. I salute the Irish for facing into financial reality. However Sanchia was not impressed and in the predictable BBC fetish that “you get out of a spending induced recession by spending even more” mode, suggested that Ireland was heading for a double dip recession because of foolishly trying to live within budget. The BBC agenda is to advance the Labour economic policy – the one that got us into the trouble. In doing so, they will seek to do down the Irish and any other country that dares suggest that responsible economic practice.
THE IRISH PROBLEM….
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I am sure it is recognised outside of Labour and the BBC that Ireland has done the right thing in tackling its deficit. Unfortunately, despite taking a responsible approach, it is now being charged higher borrowing rate which in effect negates somewhat the benefit of cuts in government spending already made. It looks as if a country in their position can’t win.
Yes, but the BBC’s approach has offered a major hostage to fortune. If Ireland goes into rapid recovery mode, can we expect the BBC simply to ignore it. I say this because if you look at indicators such as rate of return on capital, this is now rising very rapidly in Ireland – and this is almost invariably the precursor to the start of a (recovering) investment cycle.
So the best thing to do is to file Sanchia Berg’s report, and remember it as Ireland comes out of recession.
In fact, might be worth a few quid on the Irish stockmarket . . . .
Yup, if you’ve got a Bloomberg handy, take a look at the Irish ex-financials index . . . . lovely shape of the chart since the beginning of 2009 . . .
Yes Ireland are bieng asked to pay more for credit – but think about how much they would be asked for if they had allowed their debt and deficit to get even further out of control!!
The Irish problem is compounded by its membership of the eurozone. Hence Moody’s (which as DV notes is as useless an analyser and predictor of sovereign risk – albeit carrying less weight of ignorance and prejudice – as the BBC) has to look at Ireland through the lens of a failing currency union. Whatever happens, in the end the German economy will survive (and prosper) so its membership of the eurozone does not endanger its AAA rating unless Mrs Merkel does something really stupid (eg listen to any economic advice rendered by a BBC employee). However, a collapse of the euro would do lasting damage to the Irish economy no matter how sensible Ireland’s economic policies are.