When I grow up I want to be a real economist like Dean Baker. Here he rolls off the ECB and the finance mafia:
The decision to make Ireland’s workers, along with workers in Spain, Portugal, Latvia and elsewhere, pay for the recklessness of their country’s bankers is entirely a political one. There is no economic imperative that says that workers must pay; this is a political decision being imposed by the ECB and IMF.
This should be a huge warning flag for progressives and, in fact, anyone who believes in democracy. If the ECB puts conditions on a rescue package, it will be very difficult for an elected government in Ireland to reverse these conditions. In other words, the issues that Ireland’s voters will be able to decide are likely to be trivial in importance relative to the conditions that will be imposed by the ECB.
There is no serious argument for an unaccountable central bank. While no one expects or wants parliaments to micromanage monetary policy, the ECB and other central banks should be clearly accountable to elected bodies. It would be interesting to see how they can justify their plans for subjecting Ireland and other countries to double-digit unemployment for years to come.
The other point that should be kept in mind is that even a relatively small country like Ireland has options. Specifically, they could drop out of the euro and default on their debt. This is hardly a first best option, but if the alternative is an indefinite stint of double-digit unemployment, then leaving the euro and default look much more attractive.
One must wonder what Irish ministers are thinking about this euro- centric debacle when not propped in front of a microphone. The choice is simple; to default and let the banks fail and escape the euro or surrender the country to the world’s finance rapists. Closing the insolvent banks would shift the costs to those who deserve to take them: those who made the bad banking bets in the first place. At the same time, ejecting from the euro and the IMF would mean little further access to ‘international’ lending.
Skipping the euro is not a bad chance to take. When membership to the
EU is destructive as it is now to Ireland, what does it matter?
There you go Ireland, three votes to zero (Mish is another). Drop the euro and default tomorrow. By the end of the week you’ll feel a lot better.
Ireland at Crossroads
Ireland is at a major crossroads. The fact that Irish Prime Minister Brian Cowen is willing to step down helps.
I agree that Ireland certainly needs reforms. Lowering the minimum wage will help create jobs. So will reducing benefits. Both need to happen regardless of what labour parties might think.
However the biggest job creation effort will come from Ireland telling the ECB and IMF to stuff it. There is no reason Irish citizens should have to pay back the foolish guarantees made by Brian Cowen.
Cowen will be gone soon enough, and the next PM can and should have different thoughts about the meaning of “guarantee”.
German Chancellor Angela Merkel last month called for bondholders to foot more of the bill of European bailouts. I agree. It’s time to hold her to her word.
Ireland’s defaulting would render Chancellor Merkel’s opinion irrelevant. EU banks would take a haircut and like it. The Germans would draw the line at bailing out any banks punished by an Irish default even German banks.. The Irish should behave no differently than the Germans.
Mish made a puzzling remark:
My only point of major disagreement is with Baker’s suggestion that Ireland could drop out of the Euro. While Ireland certainly “could”, such a move could also cause hyperinflation, a loss of faith in the currency.
I suppose this could be said about any currency regime or any country. The sequence where Ireland refuses the euro then resurrects the punt or Irish pound would amount to a sharp devaluation. Believe it or not, this is what Ireland needs to do, devalue! Currency hardness is paid for in tears; the high current unemployment rate is a product of the super- hard euro. Since Ireland cannot devalue the euro, it’s trapped. It has to devalue its workers, instead.
If there were reserves of punts ready to flood into circulation hyperinflation wouldn’t be out of the question. Where would these reserve punts come from? It would take either a sharp deflation with easy monetary policy (by an Irish central bank that so far does not exist) or a credit/business expansion.
Instead of this drawn out process a swap between euros (which would still have value) and punts would take place at a stable exchange rate as the new punt is put into service. No new value would be created, that is the reserve value of the new punts would be identical to the reserve value of the old euros. No inflation there.
Over a period of time with excess punts flowing into reserves — Irish QE — it would mean despite the punt Ireland was experiencing deflation. Adding reserves will not effect deflation, see ‘Ben Bernanke’ (who has not learned this lesson).
If the Irish government were to succeed in cutting energy consumption, leaving citizens with insufficient goods to buy, IF there were large reserves in the banking system AND an increase in employment the funds in reserve MIGHT flood into circulation. This would be inflationary. Note that the large reserves, increase in employment and energy conservation are not likely to happen any time soon …
Foreign exchange would be an issue for the non- euro Irish. The punt would have to represent Irish output rather than its creditworthiness which post- default would be presumably zip. If Ireland can hang onto Intel, Microsoft, Google and Pfizer then it will have the output, more so if it can find a way to jettison the gas sucking, space wasting automobiles. It can then avoid the serial devaluations that have plagued countries such as Italy and Greece prior to Eurozone entry.