by Calculated Risk on 6/28/2010 10:41:00 PM

From Liz Alderman in the New York Times: In Ireland, a Picture of the High Cost of Austerity

As Europe’s major economies focus on belt-tightening, they are following the path of Ireland. But the once thriving nation is struggling, with no sign of a rapid turnaround in sight.
...
Rather than being rewarded for its actions, though, Ireland is being penalized. ... Lacking stimulus money, the Irish economy shrank 7.1 percent last year and remains in recession.

Joblessness in this country of 4.5 million is above 13 percent, and the ranks of the long-term unemployed — those out of work for a year or more — have more than doubled, to 5.3 percent.
...
The budget went from surpluses in 2006 and 2007 to a staggering deficit of 14.3 percent of gross domestic product last year — worse than Greece. It continues to deteriorate.

As the Irish government cut the budget, the economy contracted faster and the deficit as a percent of GDP increased.

And how will they break the downward cycle? Export to England and America ...

[T]he government is pinning nearly all its hopes on an export revival to lift the economy. Falling wage and energy costs, and a weaker euro, have improved competitiveness.

This approach works for one country - or a few - but not if every country is doing it.