Good old reliable Ireland - depressed Irish continue paying massive bank debt with no end in sight


The scale of the readjustment in the state finances here and the effect of that on ordinary people tends to be forgotten.

But if a similar "readjustment" was implemented in the U.S. there would be another revolution; given the reaction to the present debate on cutting spending in the U.S. that much seems certain.

The new Irish Times correspondent in Washington Simon Carswell (previously one of the best financial reporters here) pointed out some of the figures in a recent column which compared the situation there and here.

He said that between 2008 and 2012 the Irish government had squeezed €27.5 billion of a fiscal adjustment out of the state, a correction equal to 17 percent of the state’s economic output or GDP.

Carswell said that if the same adjustment had been applied in the U.S. over the past five years, based on U.S. GDP of roughly $15 trillion, the current U.S. deficit of $900 billion a year would have become a surplus of more than $1.6 trillion!

Instead, as Carswell pointed out, the Democrats and the Republicans have been unable to agree on any adjustment, resulting in the sequester kicking in.  And in spite of all the alarm over that, it only adds up to $85 billion in cuts, or less than one-tenth of the current annual deficit.

I'm not saying the Democrats are wrong or the Republicans are right.  The answer, as here, has to come from both growth and spending cuts.

And getting that balance right is not easy.  You don't want to smother growth when you're cutting spending. 

But two things are clear.  First, the scale of the problem facing the U.S. dwarfs the problem we have here in Ireland.   Second, the pain felt by ordinary folk when this kind of "adjustment" happens is very real.  

In Ireland, of course, we have a solution.  The EU/IMF/ECB troika forced us to  pay back all the lenders who pumped the billions in here that fueled the boom.  

They made us turn billions in private bank debt into sovereign debt so that it could be dumped on the ordinary Irish taxpayer.  In return they gave us the bailout.

Now that we have access to the markets again and our deficits are coming back to a sustainable level, the time is fast approaching when we won't need any more bailout money and we can refuse to go on paying.  

In spite of what has just happened in Cyprus, Europe is already starting to accept that turning bank debt into sovereign debt to be paid by all citizens is neither fair nor sensible.

Ireland can lead the way on that one.