The Case for an Irish Default: Wall Street Journal – “All roads to solvency lead through debt restructuring”


Via Irish Central; Richard Portes @ The Wall Street Journal (you know, those leftie economically illiterate types unlike Leo Varadkar or Ivan Yates) – The Case for an Irish Default:

Ireland’s public debt is clearly unsustainable… The projections contained in the International Monetary Fund’s bailout program see gross debt peaking in 2013, at 120% of GDP…

The government has already made heroic discretionary cuts since 2008, but the further turnaround required by the IMF is more self-sacrificing still…

The right policy is to restructure the debt, negotiating haircuts that would reduce its present value. A reasonable target, one in line with current market expectations, would be to cut the present value of the debt by €40-50 billion, or some 30% of GDP. That would bring the debt ratio down to a more sustainable 80% or so…

According to the (Irish) minister of finance, the ECB has told Ireland it can’t restructure this debt.

Where in the world can the central bank tell the government what it can or cannot do in fiscal matters?

What authority does the ECB have to do this? Ministers ask who will pay for Irish teachers and nurses if Europe calls back its loans. But Europe is not so foolish. The costs to the ECB and member states would far exceed the benefits of cutting off Ireland. And even if foreign financing were completely withdrawn, the current account deficit is only 2%, so adjustment should not be too difficult…

The potential downside to renegotiating Ireland’s debt is tolerable—certainly no worse than the alternatives.

A well-managed restructuring is not likely to bring about the worst of what skeptics have predicted: trade sanctions, long-term loss of market access, a significant increase in borrowing costs. The overall damage to Ireland’s reputation as a debtor should likewise be modest: The country did not get into its present situation because of fiscal profligacy…

But there is also a moral argument for forcing losses upon creditors who invested in now-failed Irish banks. Europe’s governments have been in effect bailing out their own banks and then transferring the costs to Irish taxpayers via rescue loans.

For Irish taxpayers to foot the bill for German and French banks’ misguided lending exceeds the bounds of national economic responsibility—not to mention creating the conditions of moral hazard under which these bad loan decisions may be made again in the future.

Would you like to know more?

Advertisements
This entry was posted in Accountability, Budget, Debt Default/Restructuring, ECB/IMF, Economy, EU, ireland, Leo Varadkar versus the World, Solutions and tagged , , . Bookmark the permalink.

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s