Irish take $90B bailout
posted at 10:15 am on November 29, 2010 by Ed Morrissey
Ireland became the second EU nation to accept a bailout this year after fears that its banking sector would collapse. Like Greece in the spring, Ireland will have to impose an austerity program and promise to tap its public-sector pension funds before accessing any further lines of credit. And like Greece, Ireland can expect domestic discord and unrest from the terms of the $90 billion bailout, which may not solve their problem anyway:
Ireland on Sunday reached agreement with the International Monetary Fund and the European Union for an emergency bailout package worth $90 billion, a rescue meant to both shore up that nation’s buckling banks and confront investor fears that Dublin’s problems are spreading to other European nations.
By agreeing to the bailout terms, the cash-strapped government in Ireland will be given fresh resources to recapitalize its hard-hit banking sector. Saddled with bad loans from a U.S.-style real estate bust, Irish banks have come under enormous pressure, with fearful depositors pulling out billions in recent months.
But in return for the loans, Ireland was forced to pay a relatively hefty 5.8 percent interest rate, higher than the 5.2 percent charged to Greece for its $145 billion bailout. In addition, Ireland will need to slash billions from its budget to save cash and had to promise to tap $23 billion in reserves from its own pension funds before it accesses the new lifeline.
The tougher terms appeared to be a warning to other financially troubled nations in Europe that they would have to pay an increasingly higher price for help if they could not manage to restore market confidence on their own.
Ireland’s collapse is a direct and immediate consequence of the euro. As early as 2001, Irish economists were warning that the boom was getting out of control, and that interest rates needed to go up. But, of course, therewere no Irish interest rates any more: There was only the European Central Bank. Its policy of cheap money was arguably excessive even for the core European economies; for Ireland, it amounted to catastrophically pro-cyclical monetary policy. A credit bubble was inflated; the bust, when it came, was commensurately painful. …
The credit crunch was just the beginning of Ireland’s euro-related troubles. Unable to devalue, the country suffered as the United Kingdom, its largest export market, gave itself a 25 percent competitive advantage.
Ireland’s position has now become calamitous: debt and unemployment are rising, prices and incomes are falling. GDP is down by an almost unbelievable 20 percent from peak. And here’s the really bad news: These problems will carry on for as long as Ireland is in the euro. Bailout or no bailout, Eire’s economy diverges cyclically and structurally from Continental Europe: Save by occasional and fleeting coincidence, its interest rates and exchange rates will always be wrong.
I traveled through Ireland in 2001, and can tell from personal experience that the EU was enormously popular at the time. Hannan’s right about the economic differences between Ireland and the Continent, but the EU at the time had invested a lot of money in Ireland. In one way, it was similar to Porkulus in that every project with EU funding had a big sign informing passersby about the origin of the cash behind the project, complete with the EU flag.
Hannan wants Ireland to join the Anglosphere economically, presuming that the UK doesn’t take the leap into the euro itself. That may make sense on paper, but the Irish probably aren’t eager culturally to make themselves dependent on the English if they can move forward independently. The “Celtic Tiger” was more than just the best economic period for Ireland in centuries; it was a chance to stand apart from the nation that conquered and oppressed them for almost a millenium. I’d guess that the Irish would rather take their chances with Brussels over London even after this collapse, and that it would be political suicide to suggest otherwise in the Dáil.
Besides, the bailout has plenty of Anglospheric participation as it is. The IMF will put up a third of the cash, which means that American taxpayers will almost certainly be contributing a substantial share of the money — as we did with Greece.