By Stephen Kinsella
I WANT you to imagine a little toy economy to help us think through the problems of austerity and debt relief. Telling the right story matters when dealing with the European authorities, because they have their own stories about us. We can use our story, rooted in reality, to combat theirs. Stay with me for the next few paragraphs and we’ll get somewhere interesting, I promise.
Imagine an economy with no inflation problem – prices go up by 2pc a year – and no problem trading with the rest of the world, the difference between the value of its imports and its exports is nearly zero.
The country is in a lot of debt. It borrowed heavily from the rest of the world in past years. Imagine there’s a large increase in government spending in this little economy, and everyone regards the increase as a permanent one. The increase in government spending comes from borrowing…………………………