Irish Bailout won’t work says New York Times

Need to restructure crippling debt the priority

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Brian Cowen

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The New York Times has stated in an editorial that bailouts for Ireland and Greece are unlikely to work.

“The bailout recipe for Greece, and now Ireland, has a fundamental problem: It fails to acknowledge that these deeply indebted countries will not recover until they reduce their crushing public debt, which in both cases is on its way to hit a staggering 150 percent of gross domestic product within three or four years.” the paper wrote in an editorial.

“Ireland’s total foreign debt, public and private, amounts to 10 times its G.D.P.”

The editorial stated Ireland and Greece need to be allowed to restructure its debt. “Unless they are allowed to restructure their debt, extending payouts or reducing the principal, they will hobble along for years. And any new scare, say financial problems in Portugal, would send investors bolting.
The Times say European leaders were mistaken in believing huge bailouts would work
“They crafted a $150 billion bailout for Greece, part of a $1 trillion rescue fund for vulnerable countries using the euro. With defenses like that, no investor would bet against Europe’s financial stability.

Six months later, Greece is still tottering, and the Irish financial crisis shows that their deterrent was neither as persuasive nor as effective as they thought.”

The Times says neither country is creating revenue fast enough.

“Growth could help, raising tax revenues and cutting the ratio of debt to G.D.P. But neither Greece nor Ireland is growing. And the draconian austerity budgets that are the price for the rescue deals — Ireland has promised to cut its budget deficit to 3 percent of G.D.P. by 2014, from 32 percent this year — will make things worse.

The Times said debt write offs are not being discussed at present. “Debt write-offs weren’t discussed during the Greek bailout, not least because it owed a lot of money to banks from other European Union countries. Ireland owes even more. Right now, nobody is talking about restructuring. Instead, the European Union and the I.M.F. seem likely to plow billions more into the Irish banks.

“Creditors in Ireland’s banks could be pressed to swap debt for equity, which would reduce banks’ indebtedness. And the I.M.F. and European Union rescue fund could inject capital into some banks that couldn’t get it from the markets, as well as shore up governments until they recovered access to private financing....this approach may offer the only path to lasting solvency for these countries — and long-term stability for the euro” the Times concludes

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