Ireland’s increased taxes and lowered spending

[Skip to the end]

Right, seems the eurozone is toast until the rest of the world recovers and starts importing from them of their deficits get high enough via recession- the ugly way- without the national governments and banks defaulting.

Trying to keep deficits from rising with tax hikes only means the economy goes down more as it seeks the necessary higher level of deficit spending for recovery.

A tall order but not impossible.

Erin Go Broke

by Paul Krugman

Apr 19 (New York Times) — “What,” asked my interlocutor, “is the worst-case outlook for the world economy?” It wasn’t until the next day that I came up with the right answer: America could turn Irish.

What’s so bad about that? Well, the Irish government now predicts that this year G.D.P. will fall more than 10 percent from its peak, crossing the line that is sometimes used to distinguish between a recession and a depression.

But there’s more to it than that: to satisfy nervous lenders, Ireland is being forced to raise taxes and slash government spending in the face of an economic slump — policies that will further deepen the slump.