Bloomberg has a story that suggests that fiscal austerity NOW isn’t all it’s cracked up to be. Ireland has tightened its belt, but to what end? For the moment, this isn’t an encouraging argument for going hawkish.

Yes, some of this story (most of it?) is about the euro. But the euro is really just a gold standard draped in modern fiat currency clothing, as discussed previously.
Meanwhile, according to Bloomberg:

Ireland has been exemplary in its austerity drive. Public-sector salaries have fallen by an average of 13 percent. Taxes have been raised where necessary, but not in a way that will hurt business. The Irish have been willing to tighten their belts and adjust to hard times…

Ireland is doing exactly what it has been told it should be doing. It is following the path laid down for Greece, Portugal and Spain, and doing so with admirable self-restraint and discipline. There ought to be some reward for all that effort. But there is very little sign of it.

The end result:

Credit rater Standard & Poor’s lowered its grading on Irish debt by one level to AA-, stressing the heavy cost of rescuing a banking system struggling to cope with the collapse of the property market. S&P estimates the cost of recapitalizing the banks will be about 50 billion euros ($63 billion). That’s almost a third of the economy.

Ireland now has its lowest rating since 1995. Irish bonds plunged on the news. The spread over German bunds widened to a record.

The Surly Trader called it the “Austerity Trap,” explaining: “If you have looked at the credit default swap level of Ireland lately, you would think that they were just as irresponsible as Greece and currently just as risky as Portugal.”