No opportunity missed to make things worse: Eichengreen on the 'bailout'

He3

Moderator
Joined
Oct 1, 2008
Messages
17,077
Berkeley Prof today in Handelsblatt: The rescue deal for Ireland is a disaster. So far as the Commission, the ECB amd the German federal government go, you can only say this: they never miss an opportunity to make everything worse.

Das Rettungspaket für Irland ist ein Desaster. Der EU-Kommission, der Europäischen Zentralbank und der Bundesregierung kann man nur eines sagen: Sie lassen keine Gelegenheit aus, alles schlimmer zu machen.

Irland: Jämmerliches Versagen - Meinung - Gastbeiträge - Handelsblatt.com

.........
Eichengreen is the highly regarded UC Berkeley Professor of Economics and Political Science. This piece in Handelsblatt (Germany's leading business daily) today is devastating. Every decision maker in Ireland should see it, but few will.

There is an English translation, and useful discussion, on irisheconomy.ie here

The Irish Economy » Blog Archive » Barry Eichengreen on the Irish bailout
 
Last edited:


He3

Moderator
Joined
Oct 1, 2008
Messages
17,077
Stark reference to Germany's WWI reparations

This is being read by a German audience:

... I’m also a believer in the larger European project. But given this abject failure of European and German leadership, I am going to have to rethink my position.

The Irish “program” solves exactly nothing – it simply kicks the can down the road. A public debt that will now top out at around 130 per cent of GDP has not been reduced by a single cent. The interest payments that the Irish sovereign will have to make have not been reduced by a single cent, given the rate of 5.8% on the international loan. After a couple of years, not just interest but also principal is supposed to begin to be repaid. Ireland will be transferring nearly 10 per cent of its national income as reparations to the bondholders, year after painful year.

This is not politically sustainable, as anyone who remembers Germany’s own experience with World War I reparations should know. A populist backlash is inevitable.

http://www.irisheconomy.ie/index.php/2010/12/01/barry-eichengreen-on-the-irish-bailout/#more-8831
 

Padraigin

Well-known member
Joined
Sep 22, 2006
Messages
628
This is being read by a German audience:

... I’m also a believer in the larger European project. But given this abject failure of European and German leadership, I am going to have to rethink my position.

The Irish “program” solves exactly nothing – it simply kicks the can down the road. A public debt that will now top out at around 130 per cent of GDP has not been reduced by a single cent. The interest payments that the Irish sovereign will have to make have not been reduced by a single cent, given the rate of 5.8% on the international loan. After a couple of years, not just interest but also principal is supposed to begin to be repaid. Ireland will be transferring nearly 10 per cent of its national income as reparations to the bondholders, year after painful year.

This is not politically sustainable, as anyone who remembers Germany’s own experience with World War I reparations should know. A populist backlash is inevitable.

The Irish Economy » Blog Archive » Barry Eichengreen on the Irish bailout


The analogy between imposing this killer debt on Ireland and the way reparations were imposed on the German people after WWI - and the devastating consequences - is not hyperbole. This is real and quite serious. History is repeating itself.

First, the debt was imposed.

Then, the creditors took away everything of value that could sustain an economy, leaving nothing but ever-increasing debt with no means to repay it.

Eichengreen is a German and an economist. He sees what is happening and understands the consequences.

This is real, folks. You need to be doing something fast.
 

He3

Moderator
Joined
Oct 1, 2008
Messages
17,077
The analogy between imposing this killer debt on Ireland and the way reparations were imposed on the German people after WWI - and the devastating consequences - is not hyperbole. This is real and quite serious. History is repeating itself.

First, the debt was imposed.

Then, the creditors took away everything of value that could sustain an economy, leaving nothing but ever-increasing debt with no means to repay it.

Eichengreen is a German and an economist. He sees what is happening and understands the consequences.

This is real, folks. You need to be doing something fast.
The powers that be may learn, but too slowly.
 
G

Gimpanzee

Savage stuff.

Its like watching the Irish authorities flailing around in 2008 all over again, but this time its on a cinema sized screen.
 

goosebump

Well-known member
Joined
May 23, 2008
Messages
4,940
The analogy between imposing this killer debt on Ireland and the way reparations were imposed on the German people after WWI - and the devastating consequences - is not hyperbole. This is real and quite serious. History is repeating itself.
So you reckon we might invade Poland some time in the next 20 years?
 

Expatriot

Well-known member
Joined
Dec 7, 2009
Messages
4,325
This is not as bad as Germany in the 1920s, because it is so impossible to repay and economic events move so much faster now the disaster will come to a head in the markets long before political clouds gather too much. Hopefully. If there was an attempt to push this plan for 4 or 5 years god know what would happpen, but it wont last months.

We will default quite quickly. The sooner the better.

I would sooner be ejected from the EU at this stage than suffer the kind of ultra Nationalist back lash that will happen otherwise.

The clear message from the large powers is that we are on our own now, they were fair weather friends. When in trouble we are alone, as was always the case. If we dont address this now we will have a domestic political crisis to deal with. We know from our history that that will not be pretty.

I think people from other coutries underestimate how complex Ireland is. We are very small in population terms but massive in historic and cultural terms. The river runs deep here. It is politically and socially not a runner for us to live under this deal, it is complete head in the sand wishful thinking. If there is no future for us in the EU I think many other countries will also question their membership.
 

goosebump

Well-known member
Joined
May 23, 2008
Messages
4,940
Eichengreen is the highly regarded UC Berkeley Professor of Economics and Political Science. This piece in Handelsblatt (Germany's leading business daily) today is devastating. Every decision maker in Ireland should see it, but few will.
Another 'burn the bondholders' groupie suffering from Lehman's amnesia.

I suppose there is probably a German version of p.ie where someone is writing:

"Brian Lucey is the highly regarded Associate Professor of Finance at TCD. This piece in The Irish Times (Ireland's leading business daily) today is devastating."
 

Squire Allworthy

Well-known member
Joined
May 31, 2007
Messages
1,404
He3

Thanks for the link.

Is there any wider sign in Germany of a realisation that this may not be the sanest way forward?

It is clear to anyone, bar the blinkered, that this is setting Ireland mission impossible and that is seldom a solution to anything.
 

Expatriot

Well-known member
Joined
Dec 7, 2009
Messages
4,325
So you reckon we might invade Poland some time in the next 20 years?
We have our own version of Poland up the road to rant on about and stir up emotions over if we feel the need. Never underestimate the power of Nationalism in an economic crisis.
 

Expatriot

Well-known member
Joined
Dec 7, 2009
Messages
4,325
Another 'burn the bondholders' groupie suffering from Lehman's amnesia.

I suppose there is probably a German version of p.ie where someone is writing:

"Brian Lucey is the highly regarded Associate Professor of Finance at TCD. This piece in The Irish Times (Ireland's leading business daily) today is devastating."
The USA seems to be in a lot better shape than the EU to me. Letting Lehmans go was probably the right decision if you ask me. I find it hard to imagine a situation with Anglo et al that could actually be worse than what we are facing into now. I dont honestly think you have any idea what is coming next.
 

irishpancake

Well-known member
Joined
Apr 5, 2007
Messages
17,690
So you reckon we might invade Poland some time in the next 20 years?
The only Jackboots marching in Ireland are those worn by Frau Merkel and her allies in the ECBundesBank, who have obviously forgotten the lessons of their own history.

History repeats itself, first as tragedy, second as farce (Karl Marx)

We know the tragedy, we await the farce........
 

Mitsui2

Well-known member
Joined
Nov 13, 2009
Messages
32,380
I would sooner be ejected from the EU at this stage than suffer the kind of ultra Nationalist back lash that will happen otherwise.
+1.

Apart from anything else, just imagine the number of FFers who've "seen the light" who'd happily ride that particular wave!

No trough was ever so small that a swine would refuse it.
 

Squire Allworthy

Well-known member
Joined
May 31, 2007
Messages
1,404
Another 'burn the bondholders' groupie suffering from Lehman's amnesia.
Goosebump

This is way beyond frivolity.

For one moment forget bond holders and all that and ask yourself where this 'bailout' leaves Ireland and what are the likely consequences in the EuroZone.


Give it some thought, it really is of the utmost seriousness!
 

goosebump

Well-known member
Joined
May 23, 2008
Messages
4,940
The USA seems to be in a lot better shape than the EU to me. Letting Lehmans go was probably the right decision if you ask me.
The US is in better shape because after Lehmans, it didn't let any other banks go. Lehman's nearly broke the entire Global Financial System.

Let's remember, the value of Lehmans Balance sheet as a percentage of US GDP was smaller than that of Anglo vis a vis Irish GDP.

Lehman collapse: the drama of a mad 48 hours that will never fade - Telegraph

"Lehman's collapse almost took the entire financial system with it. In the craziest 48 hours ever seen in financial markets, with shares plummeting across the world's exchanges, Bank of America was enticed to come to the rescue of Merrill Lynch. Then, having resisted Lehman's clarion call, Paulson found himself with no option but to save the world's biggest insurer AIG with an $85bn (£50bn) bailout – later increased to an eye-watering $170bn.

By the Thursday of that week, with Lehman infecting markets across the globe, the British Government had strong-armed Lloyds TSB into rescuing HBOS. Eleven days later, Bradford & Bingley was nationalised.

The following month, the government bail-outs began. The cost has been staggering. Saving the capitalist economic model has topped $9 trillion, according to the International Monetary Fund – a figure split between cash injections, lending guarantees and funding lines. It all started with Lehman."

I find it hard to imagine a situation with Anglo et al that could actually be worse than what we are facing into now.
Try having to pay out on a Deposit Guarantee after BOI and AIB go to the wall.
 

goosebump

Well-known member
Joined
May 23, 2008
Messages
4,940
For one moment forget bond holders and all that and ask yourself where this 'bailout' leaves Ireland and what are the likely consequences in the EuroZone.

Give it some thought, it really is of the utmost seriousness!
It leaves us in a really, really tight spot. I've never argued otherwise. We will continue to have <1% growth over the next 4-5 years, we will do well to get our deficit down to 10% within 5 years, we will continue to have 10%+ unemployment for at least 10 years.

I don't deny any of that. I just accept that its the best option out of a narrow choice of very bad options.

The other options are:

Dropping out of the euro, which isn't an option, as we don't have the reserves to support a currency, and we can't raise interest rates to support a currency either, and we have to maintain the value of whatever currency we use as we have so much debt

Defaulting in some way, which isn't an option, as we are entirely dependent on borrowing for both our State and our banking system.

My hope, if you could even call it that, will be that the Germans finally come around to the view that there is no option other than to introduce a couple of years of QE. I think that will take the pressure off the euro, and maybe allow us a bit of breathing space. On foot of that, if we can use that opportunity to get our house in order, maybe then we can look at some debt restructuring.

Is that serious enough for you?
 

He3

Moderator
Joined
Oct 1, 2008
Messages
17,077
He3

Thanks for the link.

Is there any wider sign in Germany of a realisation that this may not be the sanest way forward?

It is clear to anyone, bar the blinkered, that this is setting Ireland mission impossible and that is seldom a solution to anything.
and in turn thanks to Kevin O'Rourke at irisheconomy.ie.

My German is limited and I am sorry but I cannot say if there is wider recognition in Germany, except to note that in browsing the comments on a piece in Die Welt they showed a good degree of sympathy to Ireland, contrary to what is sometimes portrayed.
 

CarnivalOfAction

Well-known member
Joined
Jun 15, 2010
Messages
16,393
Goosebump

This is way beyond frivolity.

For one moment forget bond holders and all that and ask yourself where this 'bailout' leaves Ireland and what are the likely consequences in the EuroZone.


Give it some thought, it really is of the utmost seriousness!
He can't; BE explains why:

"But European officials are scared to death not just by their banks but by their publics, who don’t want to hear that public money is required for bank recapitalization. It’s safer, in their view, to kick the can down the road in the hope that something good will turn up – to rely on “the luck of the Irish.”

As John Maynard Keynes – who knew about matters like reparations – once said, leadership involves “ruthless truth telling.” In Europe today, recent events make clear, leadership is in short supply."
 

Padraigin

Well-known member
Joined
Sep 22, 2006
Messages
628
It leaves us in a really, really tight spot. I've never argued otherwise. We will continue to have <1% growth over the next 4-5 years, we will do well to get our deficit down to 10% within 5 years, we will continue to have 10%+ unemployment for at least 10 years.

I don't deny any of that. I just accept that its the best option out of a narrow choice of very bad options.

The other options are:

Dropping out of the euro, which isn't an option, as we don't have the reserves to support a currency, and we can't raise interest rates to support a currency either, and we have to maintain the value of whatever currency we use as we have so much debt

Defaulting in some way, which isn't an option, as we are entirely dependent on borrowing for both our State and our banking system.

My hope, if you could even call it that, will be that the Germans finally come around to the view that there is no option other than to introduce a couple of years of QE. I think that will take the pressure off the euro, and maybe allow us a bit of breathing space. On foot of that, if we can use that opportunity to get our house in order, maybe then we can look at some debt restructuring.

Is that serious enough for you?

Defaulting is exactly what Ireland needs to do, followed by getting out of the euro. You are another one who can't seem to distinguish between a default and a currency conversion.

"we have to maintain the value of whatever currency we use as we have so much debt"

There is no more debt when you default. You are not using any currency whatsoever to service foreign debt.

Get it?

After default, the only currency needed is to provide essential services to the Irish people. The Irish government will have to pay its domestic bills from its own domestic tax revenue.

However, considering that all domestic tax revenue will be used to provide services to the Irish people and not to pay foreign banks and foreign bond holders, that will be more than enough to maintain the current status long enough for the new currency to stabilize.

Yes, the European banks will be miffed when Ireland defaults. They will grab their scissors and start cutting up the Irish government's credit cards. No more credit. No more loans.

.... which would be the one and only thing helpful they will have done in this financial crisis.
 


New Threads

Most Replies

Top