Nobel Prize-winning economist Paul Krugman today said Ireland will "suffer" falling wages and prices as the Government lacks other tools to revive the economy.
"Ireland's economy will experience "long, slow, grinding deflation," said Mr Krugman, an economics professor at Princeton University in New Jersey, at an event hosted by Merrion Captial in Dublin this morning.
Mr Krugman, who caused controversy with his 'Erin Go Broke' artilce in the New York Timesearlier this year, said "the decisions that put you in this box have been made," referring to Ireland's euro zone status.
International markets have "lost confidence" in Ireland, Mr Krugman added.
"Ireland is not going to default,"he said, claming that "hysteria" sometimes gripped investors in relation to government debt.
Mr Krugman forecast that it will be five years before Ireland's economic growth matches that of the rest of the euro zone.
Bloomberg