Debtocracy

[harnett]

Well maybe this should have been a continuation of the debate on Ireland during the crisis (Éirinn go Brách on the country boards) - but that was always due to break out to a wider stage as the issues are so international.  Well this is centred on another "periferal country" - Greece - a thought provoking documentary about the causes and possible responses to the current crisis which looks at plenty of international comparisons from an anti-neoliberal stance.  I particularly liked the story of Ecuador, the story of "Odious Debt", and the idea of an audit committee.  Given today's news regarding the IMF's stance on Greece post DSK and the hammering of the € - it's got to be worth a look.  Check out http://www.youtube.com/watch?v=qKpxPo-lInk

[John Short]

I think it is important to compare like with like.  The genesis of Ireland's woes has stemmed from policy failure - an over reliance on property related taxes which were conflated by a property boom based on policy distortions, weak banking regulation and cronyism (with a big dollop of corruption thrown in) as posted in Éirinn go Brách on the country boards. 

As posted in The Revenue Framework Tax administration in the EU May 10, 2010, the issue is Greece has stemmed from weak tax administration and an alleged unwillingness of Greeks to pay legitimate taxes, with unsustainable levels of public expenditure.   The Irish got on with it, accepted the “good” days were over and in some cases voted with their feet which had been the traditional solution in the past (and why both of us are where we are!) and also voted in a new Government.   The Greek solution is somewhat different and has little basis in economic reality.

The IMF is coming in as bankers of last resort which it has done successfully in the many countries it has supported since its creation, but in this case backed up by the EC’s funds, given the membership of both Ireland and Greece in the EC.   I have yet to see the reported collapse of the euro – it has strengthened against sterling and weakened slightly against the dollar in the past few days.  Perhaps most countries are in such a fiscal mess that currencies may not move relative to each other because of that.

[harnett]

Agree like should be compared with like, but there are similarities between the peripheral economies, in particular with respect to their relationship with the € - hence the talk of a split.  Sure the response in Greece is different so far - the political leaders have not bitten the bullet as in Ireland, but maybe this is a reflection of the extent to which politicians can convince the populace to "take the medicine".  In Ireland, maybe there is more an element of collective guilt as most of the country shared in the "good times" to a greater extent than Greece, so the protests are more lukewarm - or there is no credible alternative on the table.

As for the €, it is at a 3 week low against the $ and the Chinese are now talking it up given their holdings of € debt.  Maybe "hammering" was overstating it, but there is certainly a crisis. Watch this space!!!

[John Short]

There is a school of thought that says that the € will be stronger without the peripheral economies tying it down so their withdrawal will create a euro fort!

[harnett]

No doubt the € would be stronger without Greece et al. - but the EC is a political project where the economics and politics are not in sink it seems!!

What's interesting now is that the Irish are rebelling against the medicine (a bit!) with the announcement that senior bondholders in Anglo Irish Bank are targetted for non-payment of debt!!  "The move is an apparent U-turn for (Finance Minister) Noonan who as recently as two weeks ago indicated that burning senior bondholders was not on the cards."


See http://www.guardian.co.uk/business/ireland-business-blog-with-lisa-ocarroll/2011/jun/15/ireland

[John Short]

From http://uk.news.yahoo.com/ireland-cuts-bank-bill-economy-grows-q1-172930005.html By Carmel Crimmins and Padraic Halpin | Reuters
 
"Ireland's economy rebounded sharply in the first quarter and the government cut its bill for bailing out the financial sector by nearly 2 billion euros (1.77 billion pounds) on Thursday after a successful debt swap by Bank of Ireland.

The Irish government's policy of making junior bondholders share part of the burden for bailing out its banks, at the root of the country's financial crisis, has so far cut 4 billion euros off a 24 billion euro bill for propping up the sector, freeing up EU-IMF bailout funds originally earmarked for it.

Finance Minister Michael Noonan told an audience of bankers he expected to generate over 6 billion euros from imposing losses on junior bondholders across the financial sector and the sale of bank assets, including the life insurance business of Irish Life & Permanent.

The government is hoping such measures, along with better than expected gross domestic product (GDP) data will decouple Ireland from Greece in the minds of investors.

"We are thinking of printing t-shirts in the Department of Finance, they won't be given out free, they will be for sale of course, saying 'Ireland is not Greece' ... across the front and back of them," Noonan said."

At least a sense of humour!

[harnett]

Yes - "rebounded sharply" is very funny.  Maybe it will mean that the December budget will only have to trim €3.5 billion rather than €4 billion of public spending!! 

But on the subject of "Ireland is not Greece", for sure it is true!  The Taoiseach enjoys 65% approval ratings (up 26% since assuming power) and there are little or no protests on the streets. The interesting question is why?  Boundless optimism?