Fiscal Ruin of the Western World Beckons

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For a glimpse
of what awaits Britain, Europe, and America as budget deficits spiral
to war-time levels, look at what is happening to the Irish welfare
state.

Events have
already forced Premier Brian Cowen to carry out the harshest assault
yet seen on the public services of a modern Western state. He has
passed two emergency budgets to stop the deficit soaring to 15pc
of GDP. They have not been enough. The expert An Bord Snip report
said last week that Dublin must cut deeper, or risk a disastrous
debt compound trap.

A further 17,000
state jobs must go (equal to 1.25m in the US), though unemployment
is already 12pc and heading for 16pc next year.

Education must
be cut 8pc. Scores of rural schools must close, and 6,900 teachers
must go. "The attacks outlined in this report would represent
an education disaster and light a short fuse on a social timebomb",
said the Teachers Union of Ireland.

Nobody is spared.
Social welfare payments must be cut 5pc, child benefit by 20pc.
The Garda (police), already smarting from a 7pc pay cut, may have
to buy their own uniforms. Hospital visits could cost £107
a day, etc, etc.

"Something
has to give," said Professor Colm McCarthy, the report’s author.
"We’re borrowing €400m (£345m) a week at a penalty
interest."

No doubt Ireland
has been the victim of a savagely tight monetary policy given its
specific needs. But the deeper truth is that Britain, Spain, France,
Germany, Italy, the US, and Japan are in varying states of fiscal
ruin, and those tipping into demographic decline (unlike young Ireland)
have an underlying cancer that is even more deadly. The West cannot
support its gold-plated state structures from an aging workforce
and depleted tax base.

As the International
Monetary Fund made clear last week, Britain is lucky that markets
have not yet imposed a "penalty interest" on British Gilts,
given the trajectory of UK national debt – now vaulting towards
100pc of GDP – and the scandalous refusal of this Government
to map out any path back to solvency.

"The UK
has been getting the benefit of the doubt, both in the Government
bond market and also the foreign exchange market. This benefit of
the doubt is not going to last forever," said the Fund.

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the rest of the article

July
20, 2009

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