Ireland should default in the foreseeable future on its debts owed to European banks and secret bondholders. The country should also consider quitting the euro, but not the European Union.
Several other countries such as Sweden and Britain are outside the euro currency zone but are part of the European Union. It is no coincidence that they are not under nearly as much pressure as Ireland at present.
There is not other possible course, given the massive deflationary budget that the current Irish government has just introduced.
The inability of Ireland to devalue its currency, print its own money and set its own interest rates has cost it enormously in the current crisis.
As a result there is no possibility of a stimulus jobs package side by side with cuts as an example.
Instead, the Irish are caught in an ever increasing spiral of massive debts, now loaded with high interest rate repayments and no growth.
The assumption of the debts of the bankrupt banks has itself ensured a death spiral of more debt, more repayments and lack of growth.
Taxing people and businesses ever higher, as has been done in the Irish budget unveiled on Tuesday, is not a formula for growth.
Quite the opposite. With far less money in the system people will cut back, not spend.
Advising the Irish government to default, The Guardian newspaper in London last week called the Irish deal the equivalent “of the Versailles Treaty.”
That was the one that banjaxed the German economy after World War 1 and led to the rise of the Nazis and the Second World War.
Overloading any economy with debt, and then charging exorbitant interest rates is a recipe for disaster as the Weimar Republic collapse proved.
It is only common sense to strongly question how the Irish government has handled this entire crisis.
The initial move to underwrite 100% all the bondholders of the banks was a disastrous step that will have to be walked back.
When the crippling debt becomes too great and the Irish taxpayer can give no more, it may be too late.
A new government could not walk away from its obligations, but certainly should renegotiate them.
Bankrupt companies reschedule their debts all the time. A percentage of the debt can be agreed upon to be repaid. The Irish government cannot pay 100% of what they guaranteed these bank bondholders.
Sure, Ireland’s pride will be hurt, but the consequence of the initial bad decision cannot be allowed to condemn future generations of Irish to penury.
Ireland is “no mean country,” with a great historical and artistic legacy as well as a footprint around the world with its 70 million diaspora that is the envy of many nations.
Through a combination of overconfidence, corruption, greed and over-reaching, Ireland finds itself at this crossroads now.
The emigrant planes are filling up, the traditional safety valve, but even the departure of hundreds of thousands will not put salve on this particular wound.
The new government needs to think clearly and very smartly about what can be done. Bond Aid or repaying with Irish taxpayer’s money those institutions and individuals who gambled on Ireland’s Wild West economy is not the way forward. An equitable settlement based on what Ireland can afford is.
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Switch to the desktop site to post a comment.beachline | Dec 12, 2010, 12:26 PM EST
@ plastic paddy: I agree completely !! The return to the Irish currency will enable Ireland to move forward and recover quickly. P.S. I am still curious about who wrote the article.
plasticpaddy | Dec 10, 2010, 07:07 PM EST
beachline the result might be the same as Iceland's crisis whereby they were able to devalue the currency thereby making their exports more competitive. Secondly it would allow us to control inflation more easily and allow us to act in our interests. Without EMU restrictions we could also bar persons from removing money from our banks for a defined period just as Iceland have done successfully and as FDR did so successfully for the USA. These actions are not just desirable but necessary. We should tell the IMF and EU to go f**k themselves and their bailout of the investors who gambled their money only for the house in this instance the Irish taxpayer to guarantee their bad bets. utterly ridiculous.
beachline | Dec 10, 2010, 10:50 AM EST
Good morning George Dillon ! My, you seem to take exception to the fact that I wanted to know the author of this article. Was it you?? An article about the possibility of Ireland returning to the Irish currency did appear in the Financial Times, and it was well written by Megan Greene. She listed pros and cons and facts to support her opinion. Good girl Megan!!
GeorgeDillon | Dec 09, 2010, 02:28 PM EST
beachline: What you write is nonsense. there is nothing inflammatory abut this article, it could have appeared in the Financial Times or Wall Street Journal. I suppose you think those are radical newspapers, beachline? Have some sense. It is not a question of whether Ireland should refuse to pay the debts incurred by private banks (I never use the word "default" because it not appropriate or accurate here) but when. And the author makes a good analogy with the Versailles Treaty. Ireland is being forced to pay war reparations. The trouble is--Ireland didn't lose any war! To continue the war metaphor, though, Quislings would be an apt description of the rats who run Ireland.
beachline | Dec 09, 2010, 12:44 PM EST
There is no byline on this story. I would like to know who wrote it and what measures the author thinks should be taken if and when such a drastic step is taken. What would be the consequences of defaulting on the debt, returning to the Irish currency, but, remaining in the European Union ??? This seems to read like an inflammatory article used strictly to stir up trouble. Anonymous author---when you put forth remarks that will have long standing consequences you must also put forth solutions to your proposals.