.....or Spain...but wait, Spain didn't have the big deficits going into the crash, and they got hit by the housing crash just like Ireland and the US and the UK.....I guess everyone was "irresponsible".There is always going to be someone irresponsible in a currency union. The euro was a mistake, because it was based on political and not economic reasons. The euro lets countries decide their own wage level, but to be competitive then you need to have a wage level corresponding to your current account. With currencies, then countries who inflate their wage levels will experience inflation. In the EU, it means large current account deficits, and then a complete crash. Because of the euro, the countries can't adjust and the other countries are dependant on them. The euro means that any country being irresponsible can drag the whole region down. Imagine it was France, and not Greece.
No, you misunderstand, the idea that "confidence" will overcome the natural tendency for consumers to pull back in hard times is a fairy tale. Consumers can't, their wealth has been severely cut down, income is down, job loss is high.....DEMAND is down. "Confidence" will not overcome these realities.Fairy tale? Are you kidding me? It is probably the most important factor in an economy. If people have no confidence the economy will recover, then they won't invest. If they believe the politicans are going to mess up the economy, then they won't invest. That is basic economics, and common sense.
Ireland is not going the Iceland route, they can't....apples and oranges. And Iceland did not go into the same levels of govt cut backs, they kept social spending up and it is paying off. As I showed above, Ireland had a lower fourth quarter in 2011.Reduction of government spending will of course lead to deeper recessions, but sometimes it is neccecary. Its not like it will never work. As I have pointed out, Ireland was probably in the worst situation, and they are doing ok now. Also, Iceland cut massively over one year. Their GDP dropped massively. But after a year or two it got better. The much better way is to fix the situation fast, so the economy and people can recover. Don't drag it out.
Now, austerity, as a means to lower debt via govt cuts in spending can work....WHEN AN ECONOMY IS NEAR FULL STEAM.....but if it is already experiencing lower private demand, removing govt spending makes the recovery longer and slower. That is not "neccecary" at all.
Edit to add: The vote on austerity came in last night in France, you lost.