Why the Irish bailout may not work

Ireland needs debt relief if it is to avoid economic collapse.

Ahead of the final details of the likely €85bn (£72bn) bailout, Ireland's government is due to present a four-year austerity package made up of €15bn of spending cuts and tax rises.

The rationale behind the austerity measures is clear: Ireland has a budget deficit of 32 per cent and its national debt has gone from 25 per cent of GDP in 2007 to almost 100 per cent. But here's the rub: if and when it becomes clear that the austerity package will reduce economic growth, the market will quickly lose confidence and the cost of borrowing for the government will rise yet again. As the cost of borrowing rises it becomes even harder for the government to meet its commitments, which leads to still higher borrowing costs. It's an unvirtuous circle.

The bailout is designed to resolve this Catch 22, but will it work? The US economist and Nobel laureate Paul Krugman suggests not. He points out that rather than an agreement to absorb Irish banks' losses, the bailout is simply a commitment to lend Ireland funds at more or less safe market rates. As a result, he argues that European policymakers have mistaken a crisis of insolvency for one of illiquidity. He writes:

...the bailout will only work if the vicious circle is at the heart of the story -- as opposed to being a symptom of the fundamental unsustainability of the austerity-and-full-repayment strategy. That is, it will work only if Ireland is the fundamentally sound victim of a self-fulfilling panic. And that's a hard claim to make.

The alternative? Debt relief. Without this, he warns, Ireland still faces a "an enormous debt load, made worse by deflation and stagnation". Judging by this, it's time for everyone to get round the table again.

George Eaton is political editor of the New Statesman.

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Quiz: Can you identify fake news?

The furore around "fake" news shows no sign of abating. Can you spot what's real and what's not?

Hillary Clinton has spoken out today to warn about the fake news epidemic sweeping the world. Clinton went as far as to say that "lives are at risk" from fake news, the day after Pope Francis compared reading fake news to eating poop. (Side note: with real news like that, who needs the fake stuff?)

The sweeping distrust in fake news has caused some confusion, however, as many are unsure about how to actually tell the reals and the fakes apart. Short from seeing whether the logo will scratch off and asking the man from the market where he got it from, how can you really identify fake news? Take our test to see whether you have all the answers.

 

 

In all seriousness, many claim that identifying fake news is a simple matter of checking the source and disbelieving anything "too good to be true". Unfortunately, however, fake news outlets post real stories too, and real news outlets often slip up and publish the fakes. Use fact-checking websites like Snopes to really get to the bottom of a story, and always do a quick Google before you share anything. 

Amelia Tait is a technology and digital culture writer at the New Statesman.