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Irish economy in desperate situation. -

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Economics correspondent Stephen Long discusses the dire economic situation in Ireland.

Transcript

SCOTT BEVAN, PRESENTER: With me now in the studio for his Friday night take on the world of
economics and finance is economics correspondent Stephen Long.

Stephen g'day.

STEPHEN LONG, ECONOMICS CORRESPONDENT: Scott.

SCOTT BEVAN: The woes of the Irish economy have been rocking the markets this week. But what I'm
wondering is, given Ireland is a fairly small country, small economy, why is Europe so worried?

STEPHEN LONG: Well if the risk was just to Ireland I suspect Europe would leave the Irish to cry
into their Guinness. But the risk, the ultimate risk is that Ireland's woes could trigger a series
of insidious feedback loops that cause a new credit crash.

And the worry is that it won't end with Ireland - that if Ireland's finances are in such a parlous
state that the markets are betting that it will need a bail-out and basically that the price of
Irish debt becomes so high that it's difficult for it to fund itself - the same might happen to
Portugal then, perhaps, even Spain, quite a large economy in Europe, even Italy, and then they'll
all have to turn to the European Central Bank and this European bail-out facility. And that will
poison and infect the finances of Germany.

And ultimately that will crash the banking system, because you'll see banks that hold the bonds of
these various nations having to write them down.

You get a new situation where banking credit becomes so tight that lending dries up and then you
can add to that that they're all under pressure to put in place fiscal austerity measures. Which
mean more cuts to public spending which feed into recessionary conditions and take away the props
from economic growth. So multiple feedback loops.

And this is one of the things, strangely enough, that economics tends to look on these things as
linear, economic developments as fairly linear, what we're actually seeing is that the global
financial system is more like an organism and subject to all sorts of interconnections.

SCOTT BEVAN: So the economic toe bone is connected to the foot bone and on and on and on?

STEPHEN LONG: And so on and so on until the whole carcass collapses, yes.

SCOTT BEVAN: So given all of that, and that interconnection, why is the Irish Government so
reluctant to accept a bail-out?

STEPHEN LONG: Because it means a loss of sovereignty.

Basically because in return for the bail-out they will inevitably have to accept conditions for
further cuts to public sector spending, they will be under the dominion, in effect, of Europe and
probably also the International Monetary Fund

And for the Irish people, sovereignty is a big deal. If you're familiar with the history of
Ireland, and I'm sure you are, this has been a big issue. They're a proudly independent nation
that's suffered invasion, and you often hear the Irish talk about the English dominating them for
800 long years and all this kind of stuff.

So it's a big deal in Ireland.

SCOTT BEVAN: Stephen Long thanks for that.

STEPHEN LONG: You're welcome.