Colm McCarthy has yet another important article in the Sunday Independent: see here. I would be somewhat more positive about what was achieved this week with the stress tests (and associated recaptialisations), and also the strengthened commitment from the ECB to continue to act as lender of last resort. But Colm is right that the critical next step is to demonstrate the capacity to push through with the fiscal adjustment.
Ireland has lost the capacity to borrow and has been forced into rescue by official lenders. Any country in this desperate position should be making every effort to get the deficit down as quickly as possible.
The decision by the coalition partners for a relaxed programme of deficit reduction is a cop-out on, critically, the one dimension of macroeconomic policy entirely within our own control.
There is no shortage of wishful thinkers offering snake-oil solutions, including unilateral default or leaving the euro. There are no useful unilateral options available to my knowledge but the surging debt mountain is controllable.
A relaxed timetable for deficit reduction means the eventual debt will be higher, and the debt service costs costlier, for the debatable benefit of postponing adjustments which cannot be avoided. Government revenue must increase, and government spending must fall, in any plausible scenario, which means higher taxes and further spending cuts. Higher taxes are coming, everyone knows it, and no useful purpose is served by pretending otherwise. The 2011 levels of current and capital spending cannot be sustained even with large further tax increases. The soft option of borrowing indefinitely is not available unless the IMF/EU, the only lenders, decide that Ireland should be financed into further insolvency.