“It may very possibly be that Ireland is in the worst of both worlds..”

Crooked Timber’s Henry Farrell with a quick overview of the Irish budget announced yesterday.

As a small open economy, Ireland would probably have devalued to help cushion the shock, if it had not been an EMU member with no effective control over its currency. Given EMU membership, devaluation (and exit from the system) would probably have been a very bad idea. Ireland is hoping to make the best of a bad job, adding levies, increasing taxes and making swingeing cuts to public sector pay so as to shore up its fiscal position. The problem is that all the fiscal rectitude in the world cannot protect you from contagious crises of confidence.