Friday, March 25, 2011

Ireland: Bad News From Bond Market-Good News From Economy

Paul Krugman argues that austerity in Europe has failed because Irish bond yields have reached new highs while British growth has stalled.

Interestingly, he doesn't mention Irish growth. GNP (which is more relevant than GDP in Ireland because of the way that foreign companies use internal pricing for tax planning purposes) increased 2% in the fourth quarter compared to the previous quarter (8.2% at an annualized rate) and 2.8% compared to the previous year.

Meanwhile, the current account surplus improved by €1.4 billion (4% of GNP) causing the overall 2010 current account deficit to fall to less than 1% of GNP.

Thus, while Ireland has more problem than ever borrowing on the bond market (something which really isn't a problem since they can borrow cheaper from other governmemts), its economy is strenghtening and the imbalances it has suffered from is disappearing.

And the point with regard to the effects of fiscal austerity is that if the British experience proves that it reduces growth, just what does the Irish experience prove?