Bailing out Ireland: wasn’t investing in growth Labour’s policy?

By Matthew Zarb-Cousin / @matt_zarbcousin

Yesterday we learnt from the government that Britain will contribute £7bn towards the £70bn Irish bailout fund. Economically, it is of course in Britain’s interest that the Irish economy grows, as George Osborne rightly asserted ahead of a meeting of European Union finance ministers:

“Ireland is our closest neighbour and it’s in Britain’s national interest that the Irish economy is successful and we have a stable banking system.”

Ireland is Britain’s fifth biggest trading partner, receiving around 7% of Britain’s exports.

What is interesting is how the coalition borrowing £7bn fits into the “there’s no money left” narrative, which has become their self-appointed mandate to shrink the state. The cuts Britain are being exposed to have hit consumer confidence and are a factor in slowing economic growth, as David Blanchflower argued in the New Statesman:

“The Nationwide consumer confidence index, which had picked up slightly in August from 57 to 61, collapsed to 53 in September. The expectations index has fallen by 47 points to 73 since February 2010, suggesting a growing anxiety among consumers about the strength of the recovery and their personal finances.”

The coalition could harm economic growth with a very risky macro-economic experiment, intimating that there is “no alternative to cuts”. I am frankly astonished that no journalists have picked up on the blatant hypocrisy, then, when it comes to bailing out Ireland (which is the right thing to be doing, let me make that clear). Ireland are running up a very large deficit in order to stimulate economic growth, as their policy of cutting their way out of a recession didn’t work (take note: David and George), but we are constantly told that this is bad practice. Running up a deficit in a recession, as Keynes argued, is a good strategy to stimulate growth and prevent the onset of an economic depression.

The latter point worth noting is that borrowing £7bn to spend on the Irish economy, which is what the government is essentially doing, is a snapshot of what Labour would be doing domestically right now.

George Osborne and David Cameron seem to realise how international, globalised markets work, and how countries are interdependent, but are not prepared to acknowledge the knock on effect that cutting 490,000 jobs in the public sector will have, as more jobs are cut in the private sector – PwC estimate 510,000 – and a substantial amount of demand is taken out of the economy, potentially slowing growth or causing another recession. We need revenue from a growing economy in order to pay off the deficit, and our economies are interdependent so bailing out Ireland is the right thing to be doing. It’s just a shame they don’t want to invest in growth here, too.