Fit For Purpose Bailouts

One of the disappointing things about the bailout and associated adjustment programme is that it has done little to lower the perceived probability of an eventual Irish default. I know that many readers believe Ireland is fundamentally insolvent, and so are not overly surprised. At this stage, however, there is growing recognition that the structure of the European bailouts also makes it difficult for countries to regain market access. Key European policy makers have indicated a willingness to revisit the arrangements, though this will have to go beyond the relatively straightforward option of increasing the size of the support funds.

I grapple with the reasons why the current structure of the bailouts is itself an impediment to regaining creditworthiness in a piece for the business section of todays Irish Times (article here).

“Can Europe Be Saved?” by Paul Krugman

Paul Krugman has a thoughtful survey of the Euro crisis in this week’s New York Times Magazine (forthcoming on Sunday but available on-line now).  This is not stockbroker-economist-type research, which tends to be long on buzzwords and hyperbole.  It is a well-reasoned feature-length review with some policy suggestions.  It has a central focus on Ireland and the other troubled peripheral states.

John Bruton on the EU response to the Irish Banking Crisis

John Bruton has an interesting opinion piece in the Irish Times – the headline is “Europe also responsible for Ireland’s Banking Crisis”. He is of course absolutely right to point out, as others have done, that this crisis would not have happened if German, UK, Belgian and other banks had not lent to Irish banks, just as much as it would not have happened if Irish banks had not lent to Irish developers. What he does not point out is that other EU members benefitted greatly from the Irish boom e.g. where were the BMWs, Mercs, Audis etc. built?

John Bruton is very critical of the EU response and highlights that it is very narrow and one sided. For example he points out that the agreement reached at the last summit only provides a mechanism for help if the crisis threatens the entire Euro-zone – no scope to help out countries hit by an asymmetric shock. He also points to other crises facing the EU that need serious action.

To me the approach taken at the summit (and during other recent decisions) implies a departure from the principle of solidarity between the EU members that was supposed to underpin the EU. Of course all EU members can start looking after domestic interests only – Angela Merkel might end up with a nasty surprise the next time she is looking for a decision that requires unanimity. In that sense, far from solving problems, the last summit has added more uncertainties for the EU. No doubt the markets will use the Christmas break to sharpen their knives!

Krugman agrees with O’Rourke

Paul Krugman has a written a blogpost commenting favourably on Kevin O’Rourke’s recent blogpost on

Exit, voice, loyalty and Ireland

I don’t agree with everything in this article, by any means, but it is thought-provoking and topical. And I definitely agree with the authors about the brilliance of Albert Hirschman.

Besides, it gives me an excuse to post a link to this piece from April.