The ECB should resolve those banks which are insolvent. That means reimbursing their depositors, up to the limit of the deposit guarantee (say, € 20.000), and then attempting to recover whatever value can be recovered from their assets. Any value that can be recovered from their assets beyond what is needed to cover depositors is then paid out to their creditors, in order of seniority. The remaining creditors get to fuck off and die.

The ECB should lend at the discount window to those banks which are solvent. That does not involve taking on crap collateral. If the bank is not able to post collateral that is not crap, then it isn't solvent and should be resolved.

The Irish state should spend money in order to support demand and restore full employment. The ECB should support this policy by purchasing all newly issued Irish bonds at the ECB's policy rate of 1 %.

The Irish state should attempt to claw back the money that was unjustly paid out to the creditors of insolvent banks. To the extent that money was ever actually paid, this is going to be hard. But I'm betting that most of that money was never actually paid, in the sense of being moved from one reserve account at the ECB to another. I'm betting that most of the money "paid out" in the Irish bank bailout was actually just the Irish government buying the debts of Irish banks using newly issued Irish government bonds. In which case it is a matter of supreme simplicity to declare those bonds void. Bonds are numbered and notarised, after all.

The Irish state should not, under any circumstance, engage in austerity. Not now, not ever.

But what is actually happening is that the ECB is telling the Irish government that the ECB will not support a sane Irish recovery policy, because the ECB is concerned about the Irish national debt. Instead, the ECB will only refinance Ireland's existing national debt, and only if Ireland engages in certifiably insane macroeconomic policies.

The logical response to that - indeed the only sane response - is to say "well then, fuck the national debt." If there is no national debt, then there is no need to refinance, and then the ECB cannot impose its austerity insanity.

- Jake

Friends come and go. Enemies accumulate.

I was tempted to down-rate your remark for willful mis-characterization, but I'll simply make this comment instead. The thread proves that you are incorrect.

paul spencer

If one thinks that ECB/IMF austerity should be rejected on principle in this case, then I don't see how else Ireland can help this cause other than by doing something like what Jake is saying.

The road of excess leads to the palace of wisdom - William Blake

Why, Merkel's so-called "competitiveness pact".

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

Here's my simplified story about the Irish economy:

• During the late 80's and early 90's there were a sequence of changes - tax cuts from very high rates (marginal of 90% at one stage!), the maturation of Irish infrastructure with the help of EU transfer payments, that sort of thing - that freed up the market economy to be reasonably efficient.

• We started playing some catch-up on the rest of Europe - the whole EU solidarity thing worked, leading to pretty fast growth from a very low base. Not a bad thing.

• The next ten years of FF-led government was an unholy mix of neo-liberals and populists who wanted to buy power by any means. What followed was a festival of tax cuts and selling the family silver - privatising assets - in order to fund tax cuts. The property boom was encouraged and fanned when it looked like flagging so that further giveaways could take place.

• Meanwhile, the neo-liberals almost entirely captured the media. Ireland is best viewed as a regional UK media market, with three Irish TV stations and tens of UK or US ones, with UK newspapers and tabloids selling well. Labour ended up believing they couldn't be too lefty if they wanted to get votes because the conventional wisdom, locally and internationally, was entirely against them. Every other day there were reports of how wonderful the rest of the world thought the Irish model was. Ireland was the shining poster child, the richest country in Europe (note that income!=wealth).

• Complaints (mentioned by Labour) about inequality, about the fragility of the tax system, about the dangers of pro-cyclical policies were all poo-pooed, with the Taoiseach of the time saying that the unbelievers should go kill themselves.

• Then the economy started to slow and the financial meltdown happened and the government and the financial regulators couldn't bring themselves to understand exactly how badly they screwed up. They went from being the smartest guys in the room to being a crowd of feckless paddies again and they have no idea how to deal with that except more of the same: cut, cut, cut and be good little boys and girls and don't let any banks die or the serious people will be upset at them.

• Bank guarantee, etc.

120 bn total exposure is not the same as 120 bn exposure to government debt.

Why yes, yes it is, since Ireland took leave of its senses and bailed out their own banks, that's precisely what it is. Unless you are in the minority that believes that Ireland has a single solvent bank left with overseas liabilities. In which case I have a "competitiveness" reform to sell you.

It's this bailout that the "Irish rescue" - at usurious 5.7 % interest - is now trying to prevent from collapsing (as it should by any right).

- Jake

Friends come and go. Enemies accumulate.

The IFSC complicates matters, in that some of the debt might be owed to branches of German banks there, for instance.