CautiousInvestor

Ireland: The Next Iceland?

Ireland is in a tough spot and I think it resembles Latvia more than it does Iceland. As the author notes, they will be forced to reduce the budget deficit in accordance with EU policy over a five year period. Nevermind Keynes.

The scale of the task facing Brian Lenihan is herculean. He must outline a coherent plan for bringing the state’s finances under control over the next five years, strike the right balance between tax increases and cuts in public spending and convince international investors who lend money that his strategy is a credible one. On top of that he has to put in place stimulus measures that will put a halt to spiralling uneployment.

Lenihan has made a start by taking a scythe to the public sector and to politicians' pay and perks. But the exercise has simply shown how far out of line Ireland's political pay had become through creative benchmarking. Brian Cowen, Ireland's Taoiseach (prime minister), for example, earns more than either Germany's Angela Merkel or France's Nicolas Sarkozy.

Preview from Europe: Fear Trumps Hope as Dow Falls Below 8,000

In my mind, it is clearly the global financial crisis that strikes fear and terror into this market. While banking and the real economy are intertwined, yesterdays action was driven by the former.

The comment by Roubini, State Street earnings, a report the BAC would need an additional $80 billion of capital and the international stories all contributed to the massive sell-off.

Credit will not thaw until the global credit crisis is resoved and it is my belief the host of measures already taken will prove insufficient. Sorry for being such a pessimist.