Monday, 6 December 2010
Saved by the Irish?
A few days ago I wrote in another blog a post stating that Ireland was lucky to be saved by the EU/IMF fund. But now I am confused. Was the Irish rescue the rescue of the Irish economy? Or was it imposed on Ireland - and on its government that will suffer in next year's polls - to rescue the banks in Europe that hold a large share of the country's sovereign debt, as today's FT argues? In the meantime, Portugal's yields have stabilized. Were we just lucky not to have been "saved" by a similar loan? What's next?
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The latter. From the perspective of the Irish, the conditions of the "rescue" are terrible and only harm their economy. The ones that gain in the short run are the bank creditors who got bailed out. I tried to explain why last Saturday (in Portuguese) in my newspaper column: http://www.ionline.pt/conteudo/92119-o-colapso-da-irlanda
ReplyDeleteHi. In that article you state that you don't agree with the IMF/EU Irish "bailout". The question then is: what would have you done, if you were the Irish finance minister?
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Briefly (and perhaps cryptically): pass resolution authority over the weekend, Iceland style; create new set of banks to which domestic assets and depositor liabilities are transferred; leave other creditors as de facto equity holders; let the markets work. Emphasis on letting the markets work. That means letting the creditors to the Irish banks assume losses; but, insofar as the Irish state is solvent without the bank debt, repay the sovereign debts.
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