Deja Vu All Over Again. Ireland Takes The Hit For Bankers’ Reckless Policies While Citizens Face Massive Austerity Cuts
It’s very depressing to see what passes for sane economic policy in Ireland. In negotiating with the same financial terrorists who got them into this mess, Ireland is only asking for more of the same. I’m still baffled, and not just about Ireland: Just how did these financial “experts” manage to make the rest of us responsible for the reckless judgment (and likely fraud like that of the Anglo-Irish Bank ) of those involved with these high-flying banks? Paul Krugman points out just how crazy it all is: Before the bank bust, Ireland had little public debt. But with taxpayers suddenly on the hook for gigantic bank losses, even as revenues plunged, the nation’s creditworthiness was put in doubt. So Ireland tried to reassure the markets with a harsh program of spending cuts. Step back for a minute and think about that. These debts were incurred, not to pay for public programs, but by private wheeler-dealers seeking nothing but their own profit. Yet ordinary Irish citizens are now bearing the burden of those debts. Or to be more accurate, they’re bearing a burden much larger than the debt — because those spending cuts have caused a severe recession so that in addition to taking on the banks’ debts, the Irish are suffering from plunging incomes and high unemployment. But there is no alternative, say the serious people: all of this is necessary to restore confidence. In early 2009, a joke was making the rounds: “What’s the difference between Iceland and Ireland? Answer: One letter and about six months.” This was supposed to be gallows humor. No matter how bad the Irish situation, it couldn’t be compared with the utter disaster that was Iceland. But at this point Iceland seems, if anything, to be doing better than its near-namesake. Its economic slump was no deeper than Ireland’s, its job losses were less severe and it seems better positioned for recovery. In fact, investors now appear to consider Iceland’s debt safer than Ireland’s. How is that possible? Part of the answer is that Iceland let foreign lenders to its runaway banks pay the price of their poor judgment, rather than putting its own taxpayers on the line to guarantee bad private debts. As the International Monetary Fund notes — approvingly! — “private sector bankruptcies have led to a marked decline in external debt.” Meanwhile, Iceland helped avoid a financial panic in part by imposing temporary capital controls — that is, by limiting the ability of residents to pull funds out of the country. And Iceland has also benefited from the fact that, unlike Ireland, it still has its own currency; devaluation of the krona, which has made Iceland’s exports more competitive, has been an important factor in limiting the depth of Iceland’s slump. None of these heterodox options are available to Ireland, say the wise heads. Ireland, they say, must continue to inflict pain on its citizens — because to do anything else would fatally undermine confidence. But Ireland is now in its third year of austerity, and confidence just keeps draining away. And you have to wonder what it will take for serious people to realize that punishing the populace for the bankers’ sins is worse than a crime; it’s a mistake . Krugman is being polite here. If you’ll remember, back in March, Iceland’s voters caused an international uproar by telling the bankers to kiss their arses over a proposed bailout deal. And unlike other countries, Iceland actually arrested their bankers for fraudulent loans. Connect the dots. Maybe holding bankers accountable is good for the economy!
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on November 26, 2010. Filed under