Bust Is Better Than Bailout for Irish Patient: Matthew Lynn - Bloomberg

CookieMonster

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Ireland would be better off going bust than taking a loan. The conditions attached to a rescue aren’t worth it: Once it takes EU money, it will never get off the hook. And the Irish banks aren’t worth saving anyway. Defaulting on your debts is a far less scary prospect than usually portrayed.

The real question is whether Ireland’s politicians have the courage to take that step.

The EU may demand an end to Ireland’s low corporate-tax rate...

Even if it isn’t explicitly part of the rescue deal, Ireland will come under pressure over the next few years to raise its corporate taxes, which take companies, government revenue and jobs from Ireland’s neighbors.
Second, the EU-IMF rescue looks like financial methadone. It numbs the pain and gets you off drugs, but it’s addictive.
Third, this is mostly about rescuing EU financial institutions. It is the Irish banks that are in trouble, and if they go down, it will cause massive losses at other European lenders. But why should the Irish people worry about that? If French, German or British banks suffer big write-downs, let their governments deal with them. Ireland could just close its banks -- such a small country doesn’t need its own finance industry any more than it needs its own carmakers.
Fourth, Ireland risks tipping into an economic spiral
Five, going bust isn’t so bad. Russia and Argentina defaulted on their debts. It wasn’t the end of the world.
And concludes:

If it defaults on its debts, Ireland can bounce back fairly quickly. If it accepts an EU bailout, it will be stuck in recession for a generation.
Bust Is Better Than Bailout for Irish Patient: Matthew Lynn - Bloomberg


<Mod> This thread has been merged with "Defaulting-a good option?" </Mod>
 
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Bobert

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That seems all well and good, except in that scenario the euro would be f*cked. We're not Russia or Argentina.
I fail to see the problem with that...
 

ocoonassa

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So which of our political party factions subscribe to this philosophy? Is there even one of them?
 

Bobert

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Ah bless...
 

politicaldonations

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We tell the europeans that we are gonna go bust unless they take a lot of the burden off us by accepting a renaging on irish bank guarnatee, ECB then takes control of the Irish banks and takes responsibility for their fixing and selling on(if deemed appropriate) Let a banking giant like HSBC or Santander come in and use half of the existing branches of all the banks here. Banks were never Irish in recent decades anyway, bondholders were foreign and so too were many shareholders.
 

Squire Allworthy

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That seems all well and good, except in that scenario the euro would be f*cked. We're not Russia or Argentina.

Both countries with the potential to grow and with an abundance of resources. Argentina is doing well just at the moment despite the best efforts of its government.



I have a major problem with these bailouts, or at least the money in them that will be due to Bank intervention. IMO that responsibility in the Eurozone should not rest on the Member states and their tax payers, but be the responsibility of the ECB. The problem is parts of the jigsaw are missing, and there are not the mechanisms in place to allow the ECB to effectively intervene and accept full responsibility.

There are good reasons to make the ECB responsible, because when it sets interest rates it should in turn accept the consequences. It also needs to be largely responsible for regulating banking within the Eurozone.

There are good reasons for separating the State from the Judiciary, and IMO there are equally good reasons for separating the State from Banking. That said we do not want a privately owned central bank, and ultimately the ECB needs to be accountable to democratically elected politicians. A job for the Eurozone members of the European Parliament
 

vanla sighs

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That seems all well and good, except in that scenario the euro would be f*cked. We're not Russia or Argentina.
I don't see why the euro would necessarily be "f*cked". The eurozone could still survive, the rouble survived in Russia, and the Argentinian whatchamacallit survived. But even if it did fall, so what?

Countries return to using their own currency. We can see what little sense it now makes having monetary union withour political union, or should I say union with Germany. As the article stated Ireland is being used as a bullwark to protect other countries. We have been sold out by the political leadership of the country. Their first obligation is to Ireland and her people and not to French, German and British banks and the international market. We have been sold out, simple as that.

More and more economists are saying we should default, Constantin Gurdgiev said it a couple of days ago: default, it is the best option for Ireland. The least worst option. Who cares if it's not the best option for Germany or whoever else - Ireland isn't Germany. The economist Robin Hahnel has said the same. As has, from what I interpreted him as saying, David McWilliams. We will be debt slaves if we accept this bailout. We don't have to accept it, there is another way to do things. Burn the bondholders, not the Irish people. I may be mistaken but as far as I know the bondholders have insurance against such a scenario.

David Mc Williams said a couple of days ago that when Argentina defaulted they were recovering within 4 months......4 months! That they had international investors returning to Argentina to do deals etc. Our government, traitors that they are, are bending us over the table to be f*cked in turn by the EU, ECB and IMF. Ireland is being financially gangbanged.

They are under the false illusion that they can contain the appetite of the financial markets, they can't. After Ireland comes Portugal, they smell blood and they are going for it. And after Portugal quite likely Spain and Italy. We should get up off our knees and take a stand: default and save our country. It's the lesser of two evils at this stage.
 
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quicksilver

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remind me please, what did the Icelanders do? they seemed to show some guts while dealing with their troubles. I'm not seeing much of that in the Irish response to these tough times.
 

Squire Allworthy

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Make no mistake Ireland will eventually default unless the terms of the agreement are extremely favourable.
 

Simon.D

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Default is the best option.... Let the euro banks take responsibility for the part they played fueling our inflated economy... Their banks were just as dodgy as ours, and on a much larger scale, blowing us up until we burst... Why should we take all the pain?
 

Libero

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vanla sighs said:
David Mc Williams said a couple of days ago that when Argentina defaulted they were recovering within 4 months......4 months!
Problem is, those 4 months are hell on earth, at least in terms of a freeze in the payments system, lost bank deposits, widespread business insolvency, civil unrest, shortages of basic supplies in shops as they either fail to open or cannot obtain stock, public service strikes, grandmothers selling their bodies for food (that happened in Argentina).

No matter how preferable it may be to have 4 months of, eh, disruption rather than a generation of penury, democratic politicians are always incentivised to avoid that disruption no matter the long term cost of avoiding it.

(Of course, it could be possible to have a period of adjustment where the nasty fallout is dampened, e.g. through a nationalised payments system, bank resolution laws, civil defence measures, etc. But that's risky and a lot of hard work and our 'partners' in Europe won't be minded to let it work if it means facilitating losses for their institutional investors.)
 
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Libero

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remind me please, what did the Icelanders do? they seemed to show some guts while dealing with their troubles. I'm not seeing much of that in the Irish response to these tough times.
Iceland took the IMF money and is doing OK: IMF Survey: Recovery in Sight for Iceland

Iceland's banks fell over quickly and were well beyond saving by the state; that was their good fortune, relative to Ireland. Outside the eurozone, the ECB wasn't there to paper over the cracks by providing bank liquidity funding, or to buy up government bonds. Rapid movement in the value of the local currency also made it impossible for the state to hide from the true condition of the underlying economy, e.g. by issuing government bonds and running a huge deficit, Irish-style.

Alan Dukes was on the Vincent Browne show a month or two ago and when asked about Iceland, he pointed out in an entirely matter of fact tone that Iceland had experienced a much more sudden and unsettling drop in living standards than Ireland, and that would never have been politically acceptable here. I thought (and think) he was correct, but really missing the point about whether Iceland-style sudden adjustment may involve a lot less pain and social damage than prolonged depression and national indebtedness.
 

sparkey321

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I have a major problem with these bailouts, or at least the money in them that will be due to Bank intervention. IMO that responsibility in the Eurozone should not rest on the Member states and their tax payers, but be the responsibility of the ECB. The problem is parts of the jigsaw are missing, and there are not the mechanisms in place to allow the ECB to effectively intervene and accept full responsibility.

There are good reasons to make the ECB responsible, because when it sets interest rates it should in turn accept the consequences. It also needs to be largely responsible for regulating banking within the Eurozone.
So you are saying that the ECB should take full responsibility for the result of our building bubble ?

Even though the Irish government refused to respond appropriately to the low interest rates, introduced and maintained tax incentives for building, hyped and promoted property and the purchasing of property, built our entire economy around one off unsustainable property related taxes. Even though the Irish government was responsible for regulating the very banks that we are now bailing out ?

Even thought eh ECB and our European colleges repeatedly warned us that spending was out of control, that our tax system was unsustainable, that we were in a building bubble that would collapse ?

Of course, you are right, nothing to do with us, its the ECB and the euro zones fault !!

Why didnt I see it ????
 

curiousmart

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but if we went for this option wouldnt households loose their savings in the banks? can someone explain this please, thanks
 

CookieMonster

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but if we went for this option wouldnt households loose their savings in the banks? can someone explain this please, thanks
They've effectively lost them anyway.

But no, there should have been a reasonable protection offered to normal depositors and there is no reason why that couldn't still be the case.

The idea what subordinated and other debt should be guaranteed was then and continues to be utter madness.
 

Ulster-Lad

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So which of our political party factions subscribe to this philosophy? Is there even one of them?
Sinn Féin has made representations of just that.
 

Fides

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Can someone link to a simple a,b,c of what happens if we default.
Do ATMs stop churning out money?
DO PS stop being paid?
Are savings gone?

That sort of thing as we should take a deep breath before we dive in.
 


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