Ireland just fell back into negative growth, with GDP for the second quarter hitting -1.2%.
The worry right now is that austerity is preventing a proper recovery in the country, by cutting state jobs and benefits that feed the broader economy’s growth.
Ireland has the added weight of an expensive bank bailout that is growing by the day. The Anglo Irish Bank bailout now poses a threat to the stability of the country’s debt.
But you can’t just blame the costs of the bailout and austerity for this GDP drop. Ireland’s membership in the eurozone is at the core of the problem.
If Ireland is going to continue to cut its public budget, it needs to be able to devalue its currency, to make its exports more competitive in Europe and the broader world. But it can’t do that locked into the euro.
So, it must sit and wait for handouts from Berlin, via Brussels, that will allow it to engage in further government spending on things like infrastructure and education.
But how can Ireland rely on Berlin, when there is so little sincerity behind their already expensive support of eurozone fringe sovereigns?
Eventually, if Ireland wants to grow its economy in any sort of robust manner, it is going to increase government spending, ditch the bank bailout, or escape the eurozone.
Right now, it seems most likely they’ll ditch the bank bailout, and that’s why investors are nervous about their debt positions in Anglo Irish Bank.