Morgan Kelly, the reluctant hero of Michael Lewis’ tale of Gaelic misadventure and Irish banking woes in March’s Vanity Fair, had the leading op-ed in Ireland Sunday warning that by agreeing to a bailout, the Irish economy has actually doomed its economy.
To recap, in 2009 the Irish government decided to nationalize four major banks facing staggering debts. If it let its banks fail, the logic went, it would scare away business. By nationalizing the banks, taxpayers get screwed, but there’s a glimmer of hope that the economy will rebound because creditors would stick around.
But in April of this year, it emerged that the amount of capital required to keep the banks solvent would be even greater than announced. The figure Kelly predicts is $250 billion — greater than Ireland’s nominal GDP (of a little over $200 billion). In other words, even if every dollar of economic output from the Irish economy went to paying off its debt, it would still face insolvency. As Kelly puts it:
“Ireland is so far into the red zone that marginal changes in the bailout terms can make no difference: we are going to be in the Hudson.”
The bailout has only put Ireland even more behind the eight-ball, Kelly argues, because the interest rate it is getting on the funds is exorbitant — although it looks like the country will get a 1 percentage point cut on its rate, to 4.8 percent from 5.8 percent this week.
His solution? Let the banks fail and cut deficit spending. But the Irish government has already rejected this prescription, saying basic social services would be stopped cold if the budget were to be slashed so dramatically.
Ultimately, it may not matter. Kelly believes Ireland now faces bankruptcy and will have to restructure its debt within two years — which, for a country labeled the Celtic Tiger just a few years ago, would be the most bitter of pills.
“For a country like Ireland that trades on its reputation as a safe place to do business, a bankruptcy would be catastrophic.”
A few months ago, I wrote about the early stages of the conflict in Ukraine through the lens of Sun Tzu’s The Art of War. While it appears likely that the war will carry on into the foreseeable future, enough time has passed for us to make an honest assessment of each side’s relative […]
The Ukrainian Army has made dramatic strides in the last few weeks. Ukraine’s tactical commanders have outfoxed their Russian counterparts, and by issuing a feint towards the south the UA has been able to earn substantial gains in the north of their country. The impact of these efforts have been compounded by the steady stream […]
In mid-May the Irish political party, Sinn Féin, won the plurality of seats in the Northern Ireland Assembly. Many American readers might not fully understand the significance of Sinn Féin’s political victory- but rest assured that subjects of the United Kingdom and a wide range of political movements the world over have heard the message […]
The first wave of the Russian offensive in Ukraine has fallen short of Russian autocrat Vladmir Putin’s ambitions. Most analysts deduced that Putin had hoped to achieve a decapitation strike of the Ukrainian government- taking Kiev and replacing Ukrainian President Vladimir Zolinski with a pro-Kremlin voice. Kiev has been threatened repeatedly through the course of […]
On the weekend of March 26th, the notorious MS-13 gang went on a massive killing spree in El Salvador which left more than 70 people dead by Sunday. Even for a country where powerful gangs hold massive sway, this recent tragedy stands out considering that it was the bloodiest day on record since the civil […]
