A couple of months back I asked, does fiscal austerity actually reassure markets? I noted there the curious case of Ireland, which embraced savage austerity early on; quite a few press reports declared that this had gained it the confidence of markets, but the actual numbers said otherwise. And I noted the contrast with Spain, which has been relatively slow and reluctant to embrace austerity, but has been treated no worse by investors.
Since then, the contrast has grown even more striking. Here’s the 10-year bond yield for Ireland:
And here’s the same for Spain:
Now, this isn’t a clean experiment: Ireland had an even bigger bubble than Spain did, so you could say that’s the issue. But since austerians were claiming bond market approval as a sign of its policy success, it is worth pointing out that dutiful Ireland looks as if it’s entering a runaway debt spiral, while malingering Spain is looking considerably better.