Start with public debt. Ireland in 2011 was indeed staggering under an enormous debt load. In 2011, the ratio of debt to GDP was 106.5%. However, this year it is projected
to be 117.5% and next year it is projected to be 120.3%. So whatever you might say about Mr. Kenny, the country is staggering under an even heavier burden today than when he took over.
What about the rising unemployment Mr. Kenny inherited? The unemployment rate
was 14.1 percent when he took over in February 2011 and is now 14.8 percent. The increase would have been larger were it not for a return to significant levels of emigration
among young unemployed Irish people.
Surely the return to growth is a good sign, right? Actually, a limited return to growth that began under Mr. Kenny’s predecessors has now sputtered out. The latest national accounts
show Irish real GDP in 2012:Q2 is 1.1 percent lower than a year earlier.
None of these facts are cited in order to criticize Mr. Kenny, a palpably decent man doing a difficult job. But the constant repetition of the “Irish success story” soundbite has two negative impacts.
The first is on the wider European debate about the impact of fiscal austerity. There are many European politicians who prefer their own version of macroeconomics to the one taught in textbooks. In this alternative universe, tax increases and spending cuts don’t have negative effects on the economy because the fiscal consolidation acts to “increase confidence”.
All across Europe, in Greece, in Spain, in the UK and elsewhere, this story has proven to be flawed. It turns out that fiscal contractions are contractionary. This has pretty clearly also been the case in Ireland but you can be sure that Time’s Celtic Comeback
story will be widely cited as an example of the benefits of fiscal contraction.
The second negative impact is on Ireland itself. Ireland is engaged in complex negotiations with other Euro area countries about the possibility of getting relief on the part of its public debt stemming from its enormous bank bail out.