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Ireland Bailout

By Matthew Yglesias on November 22, 2010 at 9:29 am

"Ireland Bailout"

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A couple of brief points on this. One is that just as with any other time there’s a bailout, it’s always worth emphasizing that though “Ireland” gets some benefit from this, the real winners are those who lent money to Ireland and will now be repaid. Specifically, people lent to Irish banks without doing due diligence on the soundness of the enterprises and without recognizing that the Irish banking sector was too big for the Irish government to bail out. Then the Irish banks got their government bailout and now Ireland is (inevitably) being backstopped by the broader European Union. The political economy of this all works because at the end of the day there’s a lot of German and other “core” banks holding that debt.

Felix Salmon says the package here is actually small relative to the size of the problem. And Ireland as a country is small relative to the size of, say, Spain. It seems to me that there’s simply no way the key vulnerable EU members can repay their debts under currently predicted growth. And there are no policy options available to them that would get growth levels up to something workable.

I guess to put a positive spin on the European policy trajectory, if you keep kicking the can down the road long enough then it’s always possible a “positive shock” of some kind will emerge from abroad. And what’s the alternative anyway to can-kicking? But I get the sense that even more so than on our side of the Atlantic, dialogue around policy options is hobbled in the EU by a reluctance to admit that any major pre-crisis steps may have been mistaken.

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