Emerald Twighlight


A few links on Ireland. One from Niam Hardiman does a great job of explaining what’s actually happening. Here Barry Eichengreen loses his cool. Tyler Cowen is pithy: “Fiscal union was, is, and will remain a fantasy. The best the eurozone could have done was to abolish national banking systems and have a truly European banking market. It’s too late for even that, though.”

Speaking of the last point, it was observed to me yesterday that in a curious way the creation of the Euro didn’t abolish the Eurozone national central banks. Normally, a country’s “lender of last resort” and a country’s “monetary authority” are the same institution—the central bank. But that’s not the case for Europe. The lender of last resort for Ireland is the Central Bank of Ireland, but the Central Bank can’t print money. Consequently, the Eurozone national central banks (In Ireland, Portugal, Spain, etc.) can actually be subject to runs and liquidity crunches. Which is just to say that Europe doesn’t even have monetary integration in the way we would normally understand it.

Last point would be that as best I can tell public statements from German politicians and commentary in the German press seems to be creating a bit of a dream world in which “irresponsible” Irish business activity is to be contrasted with “prudent” German business activity, and Germans are properly resentful in a nationalistic way about being asked to “bail-out” said Irish. In reality, the Irish government is in crisis because Ireland’s banks are in crisis. Ireland’s banks are in crisis because they invested too much money in property ventures that have gone bust—that’s irresponsible. But the nature of the crisis is that Irish banks owe a lot of money to various creditors, a great many of whom are French and German banks. Which is just to say that French and German banks made, through the intermediary of the Irish banking system, a bunch of irresponsible investments in Irish real state. That’s the exact same thing as what the Irish banks did.