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You seem to be overlooking the point that we're discussing sovereign default. Default by individual Irish banks is secondary.

You're also overlooking the point that hardly anyone believes that the current repayment regime is in any way practical or realistic. The ECB/IMF suicide agreement is based on dogma and rhetoric, not practical economic reality.

It's not Ireland that needs to deal with reality - it's the ECB and the IMF.

Given that default is a predictable outcome of the current agreement - after the real economy crashes into a depression - the choice is between defaulting now, extracting the banking parasite, and rebuilding a working real economy, or defaulting later when all that's left of the real economy is a glassy smoking crater, and the best talent has moved abroad.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Feb 4th, 2011 at 11:17:40 AM EST
[ Parent ]
Are we now? So it is sovereign default? But then of course all these odious debt arguments are irrelevant. Or is all debt of the irish state now odious?

To be honest, I don't get this: "it can't be paid argument anyway." Belgium had a public debt higher then 100% of gdp too. Even if we ignore Japan, there is also Italy.    

by IM on Fri Feb 4th, 2011 at 11:27:20 AM EST
[ Parent ]
So you're sure the debt can be paid and isn't onerous, but you're also arguing that lenders should impose punitive rates?
by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Feb 4th, 2011 at 11:30:04 AM EST
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What punitive rates? I am just saying Belgium had a debt of 115.5% to gdp in 1996 and 73,3% in 2007. So there is real example not that far away.

wWy do you assume that Ireland will always be in recession, never grow again and never be able to balance it's budget? And never gain to able to get lower interest rates?

by IM on Fri Feb 4th, 2011 at 11:57:27 AM EST
[ Parent ]
IM:

Do you really think a hedge fund - or any private lender woulds give a credit to the irish banks at 1.75%?

The current negotiated rate for the bailout loan is 5.8%, which looks pretty damn punitive to me - and certainly if you want a country to get out of a depression, loan sharking isn't the most effective way to do it.

Unless you're arguing the case for the loan sharks, of course.

I suppose someone has to.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Feb 4th, 2011 at 12:06:38 PM EST
[ Parent ]
Loan sharks? Do you assume the other european countries can borrow at 0%? And the ECB has given the banks - and that means nowadays the irish banks - a lot of money at 1.75%. And you think 1.75% is to high and so the irish banks have  a right to default on their debts to the ECB.

Burn the ECB! 1.75% is usury!

by IM on Fri Feb 4th, 2011 at 12:40:19 PM EST
[ Parent ]
FWIW, 1.75% is very close to the current one-year interbank lending rate.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Feb 4th, 2011 at 12:43:50 PM EST
[ Parent ]
A point of order: With a properly functioning central bank, a sovereign country can in fact borrow at 0.0 %.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 5th, 2011 at 01:54:45 AM EST
[ Parent ]
IM:
Belgium had a debt of 115.5% to gdp in 1996 and 73,3% in 2007. So there is real example not that far away.
That was the growth phase of the business cycle. What's being demanded of Ireland is to cut the deficit now in the middle of a recession.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Feb 4th, 2011 at 12:42:13 PM EST
[ Parent ]
That is of course nutty. Austerity now is a mad proposal. But I think a lot of the irish deficit is cyclical and would go away on a upturn. The remaining deficit can be closed. The irish are rather undertaxed - especially income tax and yes corporate tax.

So why should be impossible to balance the budget in five years or so?  

by IM on Fri Feb 4th, 2011 at 01:13:47 PM EST
[ Parent ]
Austerity now is a mad proposal.

"Austerity Now" is the Brussels Consensus, though it might well be a remake of a famous Coppola movie from the 70s, starring Marlon Brando.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

by Migeru (migeru at eurotrib dot com) on Fri Feb 4th, 2011 at 05:04:35 PM EST
[ Parent ]
"Austerity Now!" is the demand that the ECB and IMF are making.

If the ECB and IMF were not demanding Austerity Now!, then we wouldn't be having this discussion, because Ireland would be perfectly able to repay the debt in due time. But Austerity Now! is what is being demanded, and what will cause Ireland to default. Well, better to default now, and let the people who are demanding Austerity Now! eat the losses, than first crash the Irish economy and then default, leaving the Irish public in a smoking crater and the people who are demanding Austerity Now! still eating very nearly the same losses.

Defaulting is a zero-sum game. Not defaulting is a negative-sum game.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 5th, 2011 at 01:59:33 AM EST
[ Parent ]
IM:
Even if we ignore Japan

Japan "managed" by adopting a zero interest rate policy. This had the effect of making it cheap to hide the insolvency of its major banks for a decade -- at the cost of a "lost decade", (or two), of economic stagnation from which the Japanese economy has yet to truly emerge. It also helped GE and others who profited immensely from the "Yen carry trade". Richard Koo has written extensively about this "lost decade" and made an excellent presentation at George Soros' forum this last spring.

A common consequence of prolonged cheap money regimes is the creation of asset bubbles. In the US Greenspan's prolonged cheap money policy combined with "see no evil" regulatory forbearance helped fuel the bubble that broke in 2008. That bubble which began in 1999 served to facilitate the extraction of wealth from the US middle class by the US banking elites through home equity loans that made possible the continued purchase of cheap Chinese goods that also profited those same elites -- at the expense of the US worker whose real income has declined.

The end result of such cycles is economic devastation for the many and, absent governmental intervention as with FDR, consolidation of the wealth and power of the financial elites. As a collective institution that financial elite is incapable of concern for the health of the body politic or the average citizen and, in a failed attempt to continue to extract expected returns, imposes massive gratuitous damage on the society as a whole. This is what is looming for Ireland.  

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Feb 5th, 2011 at 05:47:25 PM EST
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