From the Irish Times (“Wolfgang Münchau is an associate editor and columnist of the Financial Times , and president of Eurointelligence ASBL, www.eurointelligence.com.”) – Will it work? No. What can Ireland do? Remove the bank guarantee and default:
Revoke the guarantee for the banking system and then convert senior and subordinate bondholders into equity holders
An Irish economist recently accused me of triggering the crisis when I questioned Ireland’s insolvency in one of my columns in the Financial Times . Likewise, other people have been accusing Angela Merkel, the German chancellor, of triggering the crisis with her ill-timed proposals for a regime to bail in investors. The European Commission has been accused of triggering this week’s panic in Spain because of an ill-timed critical report about the country’s economy.
Irrespective of the substance of any such claims, you have got to ask yourself: can this really be a cause of a crisis? The bad timing of a report? Or a newspaper column?
You must be kidding. If the euro zone depended on a column, it would have no future. Any realistic recovery strategy would have to take account of the inconvenience that, forgive my language, s*** happens.
What should be done now? My ideal solution – from the perspective of the euro zone – would be a common bond to cover all sovereign debt to be followed by the establishment of a small fiscal union; furthermore, banks should be taken out of the hands of national governments and put under the wings of the European Financial Stability Facility. That would clearly solve the problem.
If this is not going to happen, what can Ireland do unilaterally now? Is its game over?
I would advise the following course of action.
First, Ireland should revoke the full guarantee of the banking system, and convert senior and subordinate bondholders into equity holders…
In a monetary union, you can no longer devalue. The only chance is what economists call a real devaluation – through lower wages and prices…
From an Irish perspective, the best option, of course, would be a leap towards a fiscal union, agreed by all euro zone member states. In the absence of such a leap, the second best option would be a default – banking debt first, public debt possibly later…