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Posted at 11:00 AM ET, 11/23/2010

Ireland links

By Ezra Klein

I don't know enough about the situation in Ireland to offer any particularly smart thoughts. But these folks do. First up, the Economist's Charlemagne argues that Ireland tipped over the edge when Europe suggested that bondholders should lose money during bailouts:

On October 29th, leaders of the European Union agreed that they should re-open the treaties “to establish a permanent crisis mechanism” that would include “the role of the private sector”. The markets took this as a sign that bond-holders would be made to pay for future bailouts of troubled euro-zone members, and duly dumped the debt of the most exposed countries, notably Ireland and Portugal.

That mechanism, Charlemagne notes, still isn't in place. That leaves the question of what to do now -- and that's a hard one to answer. Ireland can walk away from some of its debt, though the cost would be a long period in which few would loan to the country. At least, that's what most think. Others note the examples of Russia and Argentina, both of which defaulted, and both of which were forgiven by the markets. The New York Times has a nice distillation of those arguments here.

Tyler Cowen rounds up some theories as to what went awry in Ireland, and Jon Chait has some fun pulling together conservatives who thought Ireland an inspiring free-market success story when it was on the rise ("rapid growth has been driven by increases in economic freedom") but are managing to blame big government now that it's in freefall ("It’s only in the last year that they finally stepped on the brakes and began to rein in the burden of government spending. But that may be a case of too little, too late.").

Lisa O'Carroll's Ireland business blog has lots of information, and it looks like Ireland's political system is cracking under the stress. Meanwhile, Europe might get worse before it gets better:

Call it the shortest relief rally on record. Anyone expecting the markets to rebound on news of the Irish bail-out would have been sorely disappointed on Monday.

Shares, bond yields and the euro all responded positively initially but after only a few hours gave up their early gains. Markets instead remain haunted by the fear of contagion: that Europe’s debt crisis could spread from the relatively small, so-called peripheral countries of Greece, Ireland and Portugal to the bigger names of Spain and Italy.


By Ezra Klein  | November 23, 2010; 11:00 AM ET
 
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Comments

Jon Chait is the first person I've seen to attempt to document the sudden about face of the conservatives on Ireland. During the run up to the 2008 presidential elections, the GOP nominees universally praised the policies of Ireland. They were held up as an example of the greatness of conservatism. "Look how great small government is!" Now that those same policies have failed, they are being denounced as the folly of liberalism. "Did we say small government? We meant big, and it totally failed. Never mind what we said before about Ireland being a conservative paradise."

Its quite an about face and its about time someone pointed out this hypocrisy. Its yet another example of how according to conservatives, conservatism cannot fail, it can only be failed by people not being conservative enough.

Posted by: Nylund154 | November 23, 2010 11:39 AM | Report abuse

"Meanwhile, Europe might get worse before it gets better" --- Europe? Just Europe?

At some point, most nations -- including the United States -- are going to need to wake up and realize that it's impossible to sustain present levels of social spending. Since the Roosevelt days, most national have increasingly spent pseudo-money on real items: it can't last.

The harsh reality is that those who are not genuinely productive members of the economy -- financiers and governments are examples of non-productive elements -- are about to feel significant stinging pain. Derivative non-productive elements -- TANF and Medicaid recipients, for example -- are likely to feel as much pain as those they have inappropriately relied upon. Is this such a bad thing? Is it wrong for the world economy to correct itself from the muddle-headed thinking of the bygone Roosevelt era?

There's reason for optimism, though: the ouster of the progressive wave is likely to spark the third industrial revolution and a return to more level-headed Lochnerian sentiments.

Posted by: rmgregory | November 23, 2010 11:52 AM | Report abuse

Greece's problems are a result of out of control spending and deficits. Ireland's are not. Ireland ran budget surpluses until their banking engineered housing and credit bubble burst. Lucky us, we've got both problems.

I think Ezra is misstating Charlemagne's argument. It was the value of Irish bonds that "tipped over the edge when Europe suggested that bondholders should lose money during bailouts", and not Ireland itself.

Posted by: bgmma50 | November 23, 2010 11:59 AM | Report abuse

Bond holders refuse to take haircuts and hence force States to undertake more bailouts which are paid in the end by Tax Payers. That is what is happening in Europe. Question is will it be able to do so when it is Spain at Half Trillion Price Tag for European Tax Payers?

It is Germany which is forcing that. (PIMCO folks are ensuring that their influence in Germany continues to play...) They benefit by consequent lower Euro and hence continues this path. Talk about vested interests of Export lobby in China. I doubt it is any different in Germany.

These Export lobbies in these 2 nations and Wall Street Bankers in USA; all are distorting respective Political Systems and globally we do not have any mechanisms to stop all these failures.

Why Ireland? Where is American Political System withstanding the pressure? Otherwise Americans would not have bought into the contradictory slogans of Tea Party.

Posted by: umesh409 | November 23, 2010 12:00 PM | Report abuse

So it's not enough that we have a bunch of bloggers pretending to be experts on their own economy. Now they're going to tell us what went wrong with the Irish economy and the euro too!

At least though you use the Economist as one of your sources, but giving it equal weight with the others makes about as much sense as getting a medical opinions from your doctor, the postman, your auto mechanic, and the guy who plays chess in Dupont Circle, and giving them all due consideration!

No doubt Paul Krugman has a model that explains it all, which only he was brilliant enough to construct.

Posted by: 54465446 | November 23, 2010 12:07 PM | Report abuse

So, is it the Irish people needing to be bailed out? Or just the Irish government?

Posted by: msoja | November 23, 2010 12:08 PM | Report abuse

The Irish government decided to guarantee the country's private banks' ocean of bad debt after the collapse of Lehman Brothers. Now the Irish people must suffer, and suffer big, unless the banks' creditors are allowed to take a bath, as well they should.

The Greek collapse, on the other hand, was the result of a woefully mismanaged government where nobody paid taxes, whose house of cards collapsed as many fled the country with their ill-gotten wealth.

The lesson for all governments? Let business and the private sector clean up its own mess and be sure to tax the rich their fair share for the benefit of the people.

Posted by: ReubenfromDenver | November 23, 2010 1:36 PM | Report abuse

"Bond holders refuse to take haircuts and hence force States to undertake more bailouts which are paid in the end by Tax Payers."

It's a game of chicken and our moron politicians and bureacrats don't have a clue how to play. So far, selling their populations into debt slavery has been the path of least resistance, but that will hopefully not be the case much longer.

The Obama administration did man up against the GM bondholders, but then turned right around and rolled over for the UAW. It's really depressing.

Financial Reform in the US should have made it possible for the Feds to force banks into receivership and force bondholders to take haircuts before throwing tens and hundreds of billions of our money into the banks, but considering that Chris Dodd is such a shill and a tool, and Geithner a Wall Street gopher, I have my doubts it will actually work out that way.

Posted by: bgmma50 | November 23, 2010 1:45 PM | Report abuse

"At least though you use the Economist as one of your sources, but giving it equal weight with the others makes about as much sense as getting a medical opinions from your doctor, the postman, your auto mechanic, and the guy who plays chess in Dupont Circle, and giving them all due consideration!"

In that analogy, which one of those people is meant to be The Economist? It's not as if it's a disinterested observer here. Even when it was noting the potential threat of a property bubble bursting, back in 2004--

http://www.economist.com/node/3261019

--it wasn't joining the dots to suggest that FF's history of working hand-in-glove with bank and construction bosses (see: Haughey, Charles j.) might come back to bite the nation.

http://www.tribune.ie/article/2009/feb/22/why-have-the-cuffs-never-been-put-on-ff/

Posted by: pseudonymousinnc | November 23, 2010 3:00 PM | Report abuse

Hey '54465446'; just because some politicians garner few thousand votes by outright lying they do not become 'experts', you want to say same for bloggers; then I am fine.

Tell him, how much brain do you need to 'see through' the non-sense of supply siders who have 'tax cuts' as the answer for every problem?

Keep aside Krugman. If you are good at Maths and ready to study all details; you very well can argue with him too.

When a blogger picks up a hole in your Economics, you do not want to take it serious; whereas when Glen Beck and Sarah talk utter non-sense, it is all ok. I do not understand how you call yourself fair. May be you do not want and continue to screw common people for few dollars more for Rich People and Ayn Rands of the world. Go on. We got a bad deal with our leader Obama that he is caving in for everything under the misguided conception of 'listening to election results' so what can you do? It is our bad luck and fate; until we get few more folks who will fight for our existence and sustenance.

Posted by: umesh409 | November 23, 2010 3:10 PM | Report abuse

"The Greek collapse, on the other hand, was the result of a woefully mismanaged government where nobody paid taxes, whose house of cards collapsed as many fled the country with their ill-gotten wealth."

Why the "on the other hand"? The distinction between Greece and Ireland isn't as clear-cut as most foreign writeups might like you to believe, and right now, you have the spectacle of Anglo executives in bankruptcy court, pleading poverty on either side of the Atlantic, having lost millions of euros in off-the-book loans. Michael Fingleton of Irish Nationwide personally signed off on mortgages for journalists in exchange for good publicity, and funneled millions in loans to FF politicians without oversight, security or proof of income. Nepotism and petty corruption has long been the grease of the Irish political wheel.

So I'd take issue with Fintan O'Toole's chronology in terms of when manageable growth turned into a doomed bubble, but I'll agree with his assessment of what happens when you combine a globalised economy with a Tammany Hall political infrastructure.

Posted by: pseudonymousinnc | November 23, 2010 3:24 PM | Report abuse

psuedo:

I just happen to think that when discussing European economic issues, it's carries a little more weight coming from actual Europeans. I talk about the World Cup every 4th year, but I have no idea what I'm talking about as I freely admit.

umesh:

I'm not sure where you and I are disagreeing. I'm certainly not defnding supply-side, although Ezra is. He ran a link today in wonkbook about how the renewable energy industry is in trouble and as a result needs more government mandates and carbon taxes to MAKE the industry grow.

When you consider that 90-95% of the economy is carbon based, what do you call a program where you tax 95% of the people to support and grow the remaining the 5%? It's just another version of supply side economics!

Posted by: 54465446 | November 23, 2010 3:32 PM | Report abuse

"I just happen to think that when discussing European economic issues, it's carries a little more weight coming from actual Europeans."

By that measure, you should be giving more weight to actual Irish commentators than The Economist, which is not exactly reticent in its ideological position, even if that meant giving Ireland less scrutiny in the mid-2000s than, say, Berlusconi's Italy received at their hands.

Furthermore, this isn't simply an economic issue, which is why your search for particular bona fides is somewhat misguided: it's one of continued governance by bullshit. A small country can get away with lying to itself when the consequences are relatively small and contained on a national scale -- a couple of hundred thousand in a Caribbean bank account here, a dubiously-arranged mortgage there -- but when the numbers involved are billions, and the nation's finances rest in the hands of outsiders who have no interest in maintaining the circle of bullshit, something's got to give, and you see that in the bond yields.

Posted by: pseudonymousinnc | November 23, 2010 4:47 PM | Report abuse

"Tell him, how much brain do you need to 'see through' the non-sense of supply siders who have 'tax cuts' as the answer for every problem?" Posted by: umesh409

Roughly about the same amount that you need tosee through" the nonsense of Keynesians who have spending as the answer for every problem.

Posted by: bgmma50 | November 23, 2010 5:45 PM | Report abuse

psuedo wrote:

"By that measure, you should be giving more weight to actual Irish commentators than The Economist, which is not exactly reticent in its ideological position, even if that meant giving Ireland less scrutiny in the mid-2000s than, say, Berlusconi's Italy received at their hands."

You're exactly right! It also helps to know the bias of the institution, as you have pointed out. So far so good. I always want to know what the people actually involved are reading and perhaps thinking if you can ever get that far.

Which is why I enjoy Ezra's column, but I would never put much stake in any newspaper financial columnist because for the most part, that's the backwater of financial writing. The blogs are even worse.

I'll give Ezra credit on this though. He does his homework on health care. We disagree entirely but he knows the lay of the land there.

Posted by: 54465446 | November 23, 2010 10:26 PM | Report abuse

Funny again that too big housing loans are a huge factor here.

Posted by: staticvars | November 28, 2010 11:26 AM | Report abuse

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