Carswell's article below - I have been saying the same thing for the longest time now - see the very first post on my blog http://sustainableireland.blogspot.com/2010/01/this-article-was-submitted-to-green.html
http://www.guardian.co.uk/commentisfree/2010/nov/23/ireland-must-decouple-and-default
Our billions will prolong the misery. Better for the Irish to quit the euro and default on their debts
Britain has just promised £7bn towards a €90bn package aimed at rescuing Ireland's economy. But the bailout has not worked. Instead, we are sinking billions into a temporary rescue of the euro that will prolong Ireland's economic misery. So we should change course and prepare to offer a dramatically different solution – help Ireland decouple from the euro and allow the country to default on its debts.
A prosperous Ireland is in Britain's interest, as the chancellor, George Osborne, was quick to tell the House of Commons. It is not simply a case of economics. There is scarcely a street in Britain in which family ties do not bind the fate of our two islands. It is precisely because we want to see Ireland prosper that we should help it escape from the euro. It was euro membership, with ruinously low interest rates for more than a decade, that plunged Ireland into the economic abyss. Diehard euro advocates might ignore reality, but if Ireland had had interest rates set according to the needs of the Irish economy rather than a wider eurozone, it would not be in this credit-fuelled mess today.
For all the fanfare, the bailout has not reduced the amount Ireland owes by a single euro. Rather, it has seen Ireland accept more debt. Ireland has now gone beyond the point at which it can pay back what it owes. The country can either spend miserable years trapped in debt, with high taxes and higher emigration, or it can decouple from the euro – and default.
Decouple and default works. Remember how the political elite in Argentina, as in Ireland, pegged their own currency to another? Yet when the peso was decoupled from the dollar and Argentina defaulted in 2002, it was free to grow again. Argentina has been chugging along at an enviable 7% to 8% annual growth each year since.
Defaulting on its debts – impossible while Ireland remains in the euro – could follow if it were to decouple. While no one would ever then want to lend Ireland such mountains of money again, would that be such a bad thing?
What is certain is that as long as Ireland remains in the euro, its economic anguish will not end. Unable to devalue, Ireland will never become properly competitive – unless it suffers a dramatic fall in wealth. Yet a collapse in Irish wages is the inevitable outcome of the policy being pursued on both sides of the Irish Sea. How can that be in the interests of either us, or our closest neighbour?
Britain faces a time of unprecedented austerity. Yet many of the savings we have made in public services have now been soaked up by our massive contribution to bailing out the euro. Failure to bail out Ireland, some say, would place British banks in difficulty. But it is precisely because our banks are not out of the woods that we should keep any spare billions we have, for what still lurks on their balance sheets.
And the Irish bailout is also drawing us into potentially unlimited eurozone debt liabilities – in effect, it makes Britain a member of the euro as a debt union. Despite Osborne's best efforts to present it as an act of neighbourly goodwill, Britain had little choice but to cough up. Article 122 of the Lisbon treaty means we will have to hand over billions through the European Stabilisation Mechanism. Even if the chancellor were to say "no", the council of ministers would quickly overrule him. Thanks to the small print of our existing treaty obligations, should Portugal, Spain, or even Italy now seek a bailout, our potential liabilities would be unlimited.
Britain is discovering that it has been drawn into a long line of euro "debt dominoes", each one at risk from any of the others falling. Allowing the break-up of the euro could prove less ruinous than paying to keep everybody in line.
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Paul Krugman's article in the New York Times 'Eating the Irish'
http://www.nytimes.com/2010/11/26/opinion/26krugman.html?_r=2
Most people know Swift as the author of “Gulliver’s Travels.” But recent events have me thinking of his 1729 essay “A Modest Proposal,” in which he observed the dire poverty of the Irish, and offered a solution: sell the children as food. “I grant this food will be somewhat dear,” he admitted, but this would make it “very proper for landlords, who, as they have already devoured most of the parents, seem to have the best title to the children.”
O.K., these days it’s not the landlords, it’s the bankers — and they’re just impoverishing the populace, not eating it. But only a satirist — and one with a very savage pen — could do justice to what’s happening to Ireland now.
The Irish story began with a genuine economic miracle. But eventually this gave way to a speculative frenzy driven by runaway banks and real estate developers, all in a cozy relationship with leading politicians. The frenzy was financed with huge borrowing on the part of Irish banks, largely from banks in other European nations.
Then the bubble burst, and those banks faced huge losses. You might have expected those who lent money to the banks to share in the losses. After all, they were consenting adults, and if they failed to understand the risks they were taking that was nobody’s fault but their own. But, no, the Irish government stepped in to guarantee the banks’ debt, turning private losses into public obligations.
Before the bank bust, Ireland had little public debt. But with taxpayers suddenly on the hook for gigantic bank losses, even as revenues plunged, the nation’s creditworthiness was put in doubt. So Ireland tried to reassure the markets with a harsh program of spending cuts.
Step back for a minute and think about that. These debts were incurred, not to pay for public programs, but by private wheeler-dealers seeking nothing but their own profit. Yet ordinary Irish citizens are now bearing the burden of those debts.
Or to be more accurate, they’re bearing a burden much larger than the debt — because those spending cuts have caused a severe recession so that in addition to taking on the banks’ debts, the Irish are suffering from plunging incomes and high unemployment.
But there is no alternative, say the serious people: all of this is necessary to restore confidence.
Strange to say, however, confidence is not improving. On the contrary: investors have noticed that all those austerity measures are depressing the Irish economy — and are fleeing Irish debt because of that economic weakness.
Now what? Last weekend Ireland and its neighbors put together what has been widely described as a “bailout.” But what really happened was that the Irish government promised to impose even more pain, in return for a credit line — a credit line that would presumably give Ireland more time to, um, restore confidence. Markets, understandably, were not impressed: interest rates on Irish bonds have risen even further.
Does it really have to be this way?
In early 2009, a joke was making the rounds: “What’s the difference between Iceland and Ireland? Answer: One letter and about six months.” This was supposed to be gallows humor. No matter how bad the Irish situation, it couldn’t be compared with the utter disaster that was Iceland.
But at this point Iceland seems, if anything, to be doing better than its near-namesake. Its economic slump was no deeper than Ireland’s, its job losses were less severe and it seems better positioned for recovery. In fact, investors now appear to consider Iceland’s debt safer than Ireland’s. How is that possible?
Part of the answer is that Iceland let foreign lenders to its runaway banks pay the price of their poor judgment, rather than putting its own taxpayers on the line to guarantee bad private debts. As the International Monetary Fund notes — approvingly! — “private sector bankruptcies have led to a marked decline in external debt.” Meanwhile, Iceland helped avoid a financial panic in part by imposing temporary capital controls — that is, by limiting the ability of residents to pull funds out of the country.
And Iceland has also benefited from the fact that, unlike Ireland, it still has its own currency; devaluation of the krona, which has made Iceland’s exports more competitive, has been an important factor in limiting the depth of Iceland’s slump.
None of these heterodox options are available to Ireland, say the wise heads. Ireland, they say, must continue to inflict pain on its citizens — because to do anything else would fatally undermine confidence.
But Ireland is now in its third year of austerity, and confidence just keeps draining away. And you have to wonder what it will take for serious people to realize that punishing the populace for the bankers’ sins is worse than a crime; it’s a mistake.
A version of this op-ed appeared in print on November 26, 2010, on page A37 of the New York edition.
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