In case you can’t wait for blogger PH’s rivetting radio lecture: “The Financial Crisis: Ireland and The World” (recorded yesterday before a live audience but not being transmitted until St Stephens Day), you can get the text here.
It’s mostly an interpretation of the causes of — and policy reaction to — the global crisis, and corrects several common fallacies or half-truths.
The Ireland-relevant take-away: Our banking problems were caused by globalization…but not in the way you may think.
It was the fall in interest rates on euro adoption that triggered much of the bubble; easy access to international funding that fuelled it.
(Irish banks’ net foreign borrowing 2003-7 amounted to 50 per cent of GDP; Icelandic banks didn’t do any net foreign borrowing!).
3 replies on “St Stephen’s Day entertainment”
One of the lessons from the global crisis is that gross liabilities matter as well as net positions. Icelandic banks had very large gross foreign liabilities and their foreign assets were much more illiquid than their foreign assets.
True enough: (though show me a bank whose assets are more liquid than its liabilities). But you will agree that size per se was not the problem of Iceland’s banks (they are smaller than Ireland’s) but the fact that they had no credible backstop public guarantor, because the country they chose to maintain as their home is so small.
On Patrick’s last comment, I hope that Irish policy makers have all read this article (http://www.voxeu.org/index.php?q=node/2498).
And I also hope that they therefore insist that when the referendum on Lisbon is re-run, as I suppose it will be, this be on the explicit condition that no element of doubt regarding Ireland’s membership of the EU is allowed to surface; in other words, that everyone agrees that we will remain a member of the EU and Euro, even if the result is yet again ‘no’. Otherwise we could be injecting an element of uncertainty into the economy that we can’t afford, given the state of our banks and the government bank guarantee.