Ireland: damned if you do and damned if you don't

In spite of being lauded for the rapidity with which it implemented draconian measures to deal with its banking crisis and government debt levels, Ireland once again finds that the premiums investors demand to buy its debt have climbed. Fortunately for the country, it has already funded its borrowing needs through the middle of next year so it can opt not to place debt at these rates.

Why do Ireland's problems matter to Mexico? For several reasons... First, if the Europe-centered financial crisis were to erupt again, the dollar would strengthen and the peso along with it. In the worst of cases, we could see financial markets freeze up again. Second, Ireland's position now is a vivid reminder that markets can be fickle: portfolio investment that comes in can go out in as long as it takes for someone to press the "enter" key. Being the markets' poster child -- slashing government spending, saving its banks, and sticking to its austerity program -- doesn't guarantee that the premium for issuing debt later won't soar.