Final Fantasy

As bad as our self-imposed national economic disaster has been, nevertheless Ireland deserves credit for having acted. The sheer size of our banking losses meant that Ireland has been unable to hide from the truth that is still only emerging across the rest of the OECD countries -that cheap borrowing and living on credit will not be an option for many years to come.

Ireland and the Baltic countries are virtually alone in having made serious fiscal and household adjustments in recent years. Portugal and Britain have also started on this road but have yet to deliver significant results. However, the other developed countries, notably the United States, Japan and much of continental Europe seem to still be in denial about the paradigm shift that has occurred. While the PIIGS have been in the headlines, in reality lenders will soon be casting a sceptical eye on all State borrowings and from now on, balanced budgets and declining debt profiles will have to be the order of the day -like it or not.

The truth is that all countries need to move quickly to a fiscally secure footing, and only those with the most extreme situations (such as Greece) can receive help in achieving this.

Far from requiring a European response, this crisis requires much more widespread austerity -which falls mainly in the domain of domestic, even houshold policy. All of our European policy interventions to date have been aimed at staving off these uncomfortable but inevitable national tasks. The very stability of the Euro has been called into doubt over the manouevring of leaders to delay austerity. Nonetheless we will eventually have to face up to our deficits and the control over the process we still retain could evaporate at any moment. The crisis calls for much more concerted actions by all States to correct their budgets for next year. That is the fundamental truth of the sovereign part of this crisis, all the complexity that has been heaped on top of that is simply detail.

In these circumstances, a "double-dip" recession seems inevitable (despite what Mr Buffett says). We have been living beyond our means and no wizardry will substitute for what must come next -working harder for less.