It’s Not About Ireland Anymore

By Simon Johnson

On the Project Syndicate website, Peter Boone and I argue, with regard to the European situation in this coming week:

The Germans, responding to the understandable public backlash against taxpayer-financed bailouts for banks and indebted countries, are sensibly calling for mechanisms to permit “wider burden sharing” – meaning losses for creditors. Yet their new proposals, which bizarrely imply that defaults can happen only after mid-2013, defy the basic economics of debt defaults.

Given the vulnerability of so many eurozone countries, it appears that Merkel does not understand the immediate implications of her plan. The Germans and other Europeans insist that they will provide new official financing to insolvent countries, thus keeping current bondholders whole, while simultaneously creating a new regime after 2013 under which all this debt could be easily restructured. But, as European Central Bank President Jean-Claude Trichet likes to point out, market participants are good at thinking backwards: if they can see where a Ponzi-type scheme ends, everything unravels.

Like it or not, it’s time for the Europeans to decide: Who gets unlimited liquidity support because they are essentially solvent, and who has to restructure their debt – with bridge financing and help from the outside?

This will be painful and intense.  The case for debt restructuring in Ireland and Greece is clear.  What about Portugal and, even more controversial, Spain – and other eurozone sovereign borrowers? 

For our complete assessment, please see the Project Syndicate column.  Here is the full link:

40 thoughts on “It’s Not About Ireland Anymore

  1. For cultural reasons, I believe the Irish should smash the dishes and leave others to sort it out. About Spain, I’m not so sure. It will be a good test of the Euro, and, by proxy, of a supranational reserve currency.

    If the managers of the Euro can survive a genuine crisis, then the aftermath of this most recent G20 should be international scheming and conniving to eventually supercede the dollar as a reserve currency, without Zoellick’s gold kookiness. If they can’t, fall in, pay up and quitcher bitchin’ ‘bot ‘xorbitant seigneurage.

  2. Would this German ‘fix’ actually be not about helping EU member countries but making whole existing bond holders (German banks) with a recipe which can also be applied to German bank holdings of other PIIGS bonds?

    Seems the only reasonable 11/2010 interpretation of this liquidity fix offer when Ireland currently claims to be funded through June 2011 and progressing on a positive solvent path?

  3. Ireland Confirms Budget Talks, Denies EU Bailout Plea

    (AFP) – 2 hours ago – excerpt

    DUBLIN — “Ireland said it is in contact with “international colleagues” over its budget crisis on Monday amid speculation that a rescue is imminent, but it denied asking for an EU bailout.

    The renewed denial that Ireland has sought help from a special EU system set up after the Greek debt crisis six months ago was backed by French Economy Minister Christine Lagarde who said no request had been made. Pressure against Irish government debt rose in mid-morning trading on the eurozone sovereign debt market on Monday, amid a climate of deep concern about the state of public finances in Ireland and also in eurozone members Portugal and Greece.”

  4. Comrade Heinrich!!!

    Yes Comrade O’Sullivan???

    Remember I told you we got cracks in the EU Dam???

    Yes, I remember Comrade O’Sullivan, Don’t worry. I got the concrete sealant right here. But you know we told you to fix it yourself before.

    Oh!!!…. Comrade Heinrich, that hole is very big now, I don’t think the sealant going to fix the many meters wide hole.

    Well, O’Sullivan, maybe you ask some neighbors to help you and the bondholders take a haircut, you can grit your teeth and bear it.

    Yes, but Heinrich, we already got your neighbors in this mess too!!!

    So O’Sullivan, what do you old Heinrich look like??? Do I look like some stupid American taxpayer who pays for big bankers’ losses or something?? You think I am that stupid????

    [Silence rings out in EU land………….]

  5. I would like to point to a little-known fact: size of the stimulus in Germany: 480 billion euros
    A keynesian success: The German Miracle,1518,707231,00.html
    Now, it should seem pretty obvious, given the latest twists, that Germany, for domestic politics reasons ( if the coalition loses the election in Bad-Würtemberg this coming March, they are out without a majority ( and the coalition also has the same approval ratings in the German polls as Mr Sarkozy himself ), that the duet Merkel-Schaüble, flanked by the Austerity vicar, M Trichet, will do all they can not to resort to the EFSF, such is the sad state of Europe or its remains,
    And they have been digging on their heels against Euo-bonds since the idea was floated originally…
    Imho, another symptom of the ‘inverted nationalism’ifluenza spreading around Europe

  6. Who is going to say to the bankers and rich investors and say ‘hey guys those are your losses not mine you are cheating me’. When the bankers/investors say ‘well i know they are my losses but we’ll crash the economy if you don’t pay’ they can reply ‘go ahead’.
    Perhaps the Germans.

  7. I was disapionted the Irish did not take the lead in sorting out their banks. Anyway this debt looks like it is going to be passed on to the Europeans. So perhaps then the Gernaman taxpayer might be able to point out the injustice better than the Irish.
    Go Europe.

  8. Nobody seems to point out that the Irish used to be the poorest, before getting in the Union. For the last year where numbers are available they are richer, per capita, than the French, and at fortiori, the Germsns. This was thanks to Union aid, and the fact Ireland was given a free ride (no taxes for lots of people going to Ireland, etc.)

    Clearly Germany went through a long and severe austerity, after its own reunification. Now Germany is powerful, but the Irish can afford to sacrifice. A lot.
    In truth lots of the present plans are to keep the private banks up, going, and conspiring, same as before.
    Patrice Ayme

  9. There’s a point that has to be debated. All of this churn is, I believe, largely a reflection of the intra-linked financial system created by the Internet.

    Ireland became a hungry participant in the unfettered global flow of dollars (euros), building up an enormous pile of debts based on utterly insane valuations, and its willingness to cater to those looking to park their money somewhere that could reward them well. The country’s perceived advantages dissipated after the fall, and the money – in a near instant – went elsewhere.

    It begs a much larger question. This global system now allows capital to relocate in a blink. Every country ties to every other in one big pool. And every country is dragged along in the wash of this capital that’s sloshing around the network. What does this mean for the idea of capitalism and for markets? We’ve had a series of these tremors over the last twenty years. I don’t expect them to stop.

    To the contrary. I think this trigger-quick mechanism has serious implications. Think of the Internet as an amplifier. The scale and pace of these jolts can only increase as we go forward. What are the implications?

  10. Mr. Johnson wrote:

    “This will be painful and intense. The case for debt restructuring in Ireland and Greece is clear. ”

    Resistance is Feudal.

  11. EU Poised For Irish Rescue: Opposition

    Nov. 15, 2010 1:37PM EST – Reuters – excerpts

    “Ireland’s opposition said on Monday it believed Europe had started moves to rescue debt-ridden Dublin and pressure grew for quick action to prevent the crisis spilling over into other euro zone countries.

    The Irish government denied it would need a bailout, but a senior member of the European Central Bank confirmed discussions were under way with Dublin and said that aid, if requested, would be available for Ireland’s banks or for the state itself…

    “I’m extremely concerned. I think the reports [of an imminent bailout] over the weekend are true … I think there is European intervention under way,” the Irish opposition’s finance spokesman, Michael Noonan, told the BBC….

    Mr. Noonan, who could become finance minister if the government falls, said he believed matters would come to a head in the next 24 hours, given the euro zone ministerial meeting, and that a bailout could lead to Ireland being suspended from bond markets for three or four years.”

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  14. To answer Norm Cimon’s judicious question above:
    I have suggested on my blog, long ago, that what is needed is the financial equivalent of the speed of light in physics.

    The speed of light basically creates CAUSALITY. If not for c, one could never tell the effect from the cause (yes, that’s a problem Quantum Mechanics has… and my solution is the same as the one I propose for finance).

    How to create a speed limit in finance? simple: tax high frequency trading.
    Patrice Ayme

  15. I’d say the long long term view and implications are pretty simple: the eventual complete dissolution of power of individual city states. Large corporations and the megawealthy can already basically ignore their existence. The only way to regulate such beasts (and smoothing the jolts) is to have a true global authority capable of asserting law over all regions.

    I’m not advocating for or against the concept, but I certainly can’t see globalism continuing smoothly without this eventual seismic shift.

  16. Technically the speed of light already acts as a speed limit to HFT. You’re just saying even that’s too fast, which I can certainly agree to. Good luck getting laws to choke down on it when the biggest owners of lawmakers are the biggest losers with such laws.

  17. The Irish can afford to sacrifice eh??? Patrice I often wonder if you live on the same planet as the rest of us, or another planet created by your own brand of bizarre economic analysis. You could call it “Patricianism”—an odd, undisciplined, and nationalistic school of economics which forgives all sins French.

    But it will be fascinating/entertaining to see your analysis of the cry baby socialists in France, after the most woosy country in Europe (next to maybe Greece) find out they may have to suffer more severe things than retire past at age 60 now. poor dears.

  18. Mr. Johnson wrote:

    “It’s Not About Ireland Anymore”

    S&P Predicts House Prices To Fall Another 7% to 10% Through 2011

    11/15/2010 05:05:00 PM – Calculated Risk

    “This is one of the reasons I expect house prices to fall another 5% to 10% – and it looks like S&P is now forecasting about the same price declines.”

  19. “It’s Not About Ireland Anymore”

    Contagion Hits Portugal As Ireland Dithers On Rescue

    10:23PM GMT 15 Nov 2010 – Ambrose Evans-Pritchard

    “The EU authorities have begun to vent their fury against Ireland over its refusal to accept a financial rescue, fearing that the crisis will engulf Portugal and Spain unless confidence is restored immediately to eurozone bond markets.”

  20. We’ll help the £70bn rescue Cameron tells Ireland as fears grow country will drag Europe back into recession

    16th November 2010 – MailOnline – excerpts

    ” David Cameron is prepared to help the Irish as they are vital to the success of the British economy. David Cameron offered help to Ireland yesterday amid growing fears that the country’s imperilled economy will drag Britain and the rest of Europe back into recession.

    The Prime Minister spoke to his Dublin counterpart Brian Cowen as Downing Street made clear that the UK is prepared to contribute to a £70billion bailout.”

  21. And, thus proving that in Europe, as well as in the US (and perhaps everywhere else in the developed, and perhaps, developing nations) the banking oligarchy is well positioned politically. What in the hell do they do when the entire house of cards falls all at once. After all, it is entirely possible for parasites to kill their host. Sadly, in this case, there is no other host to attach to. It is just as well, and the day of reckoning promises to be bloody awful and historically interesting. After all, just now many dollars and euros can be printed before the printing becomes meaningless. They will need a much greater place kicker to kick this can down the road and there hasn’t come one yet who can make it from the other end zone.

  22. Simon, in EuroJenga Blocks For Christmas” I argue that Angela Merkel may have been cornered by the realities of today’s dire situation including the cold war over currency values into putting the hard Euro on the back burner, in which case the “irresponsible” Merkel-Sarkozy plan and the remark about haircuts which triggered the current acute phase of crisis could well have been deliberately engineered to force the ECB – kicking and screaming – down a path it had not chosen. If you get a chance to read my post, I would appreciate your feedback.

  23. Is there an argument in here somewhere or just Tedism as an antidote to patricianism…cant tell the difference

  24. HMMMMM!!!

    I do recall many a frantic and piqued Portuguese commenter on here, , most loudly lamenting your heretic babbling’s with regards to the Soundness of their nations finances, not but one summer ago…

    Professor Simon, me thinks you are owed an apology. Well as the old saying goes, shooting the messenger is far easier than contemplating the problem.

  25. I still contend that it’s not only a matter of the Europeans completing their monetary cordon sanitaire but it’s a matter of restructuring the Eurozone debts via common issuance of EU bonds. Any ECB’s decision to put more money in circulation by buying government bonds is just the Ponzi’s never ending story. Actually what should be done is to start writing-off all those loans/bonds which the banks count as assets because they were expecting to be paid back, and the money in the Euro-zone would be counted simply as destroyed.

  26. Re: @ 3-D___ Quote: Jonna…The Russian, and Chinese Governments have been doing research work for years (the United States obviously is also envovled but on the QT) regarding “Torsion Fields” and their applications. What is a Torsion Field? There are three types: E-fields, S-fields, and G-fields. The E, S, and G stand for Electric , Spin, and Gravity fiels. The torsion field and its emananations are subtle energy fields. They are separate and distinct from classical Electric, Magnetic, and Gravity fields. Generators for these fields can be sheilded against electro-magnetic fields and the torsion field still manifest itself through such sheilding. Torsion fields can be generated, detected, switched on and off “such as for communication purposes”, and are a distinct type of energy field heretofore not included in today’s classical physics. “Torsion field emanations can travel at velocities at least as high as ‘109’ times the speed of light. Torsion fields can interact with laser beams thusly “changing frequency”. Torsion Waves – another field theory offspring (torsion- field theory of the physical vacuum, eg. space) can travel at 109C – one billion times the speed of light. Now…if I could elaborate from the “Far Side” on, “Technically the speed of light already acts a speed (governor?) limit to HTF’s”, naught! Patrice is hlf way correct but is somewhat at the fringe regarding “Quantum Mechanic’s” because the future is now and the fix is on as the past comes to an abrupt close? Ref:,htm

  27. Bondholders may be good at thinking backwards, but they’re also good at reading between the lines. And they know that a bailout today means a bailout in 2013, which is why the markets remain relatively calm.

    The only question is how long national leaders can continue to make bald-faced lies about their true intentions before the entire system collapses from a lack of trust.

  28. That smells like quackery. Passing information at past the speed of light has proven all but impossible. There are some interesting effects of quantum entanglement, but even those seem to still obey the speed of light. They just might propagate information BACKWARDS in time at the speed of light, then forward again, making information seem to pass at beyond the speed of light.

    With a closer look at that page (your actual link is dead, btw), it resembles the same kind of quackery the Timecube or John Titor were guilty of. Extraordinary claims (109 times the speed of light!) require extraordinary proof, and I’m not seeing any there. Just poorly formatted, difficult to read claims of the extraordinary.

  29. There are currently a total of 27 countries belonging to the European Union Community…with 16 countries of the grand total sharing the responsibility of the Euro Currency. The “2009 GDP” of EU currencies in member states was a whopping $16.5tn ($US$) compared to the United States of $14.8tn ($US$). Let us not forget that the UK is not a Euro member, and that Ireland will have severe ramifications on the UK’s economy if Ireland remains stubborn, and doesn’t take its financial austerity placebo? Greece will be tossed overboard as they are showing signs of Nationalization (Good Riddance?). The one thing in favor of the Euro is that they don’t have a “Fereral Reserve” perpepuating a “Ponzi Scheme” too infinity and beyond. They (EU) have the wherewithall to overcome the current crises in my opinion because of their financial dicipline and not being led by their nose from a “Private Central Bank (FR)”…unaccountable to no one. They have a much healthier accounts balance sheet, with ~ 15% greater GDP revenue than the U.S.! The “United States” sponsered World Bank (WB), and the International Monetary Fund (IMF) which proliferate bad economic/financial (blackmail?) policy are going to be used as last resort! I would even go as far as saying the “Bond Ghoul’s” (behind closed doors)…will be told implicitly to take a haircut or their losses will be that of a “Financial Pyrrhic Victory” when they stubbornly , and arrogantly kill their “Golden Goose”? JMHO Thankyou, Simon, and James :-)

  30. Ted K, all excited…
    Patricius Maximus will answer you…

    First let’s mention in passing than I do not profess any particular admiration for the contemporary French socialists (my hero is Leon Blum). The 35 hour work week and retirement down from 65 to 60 were two big mistakes (the details of how they came about are Byzantine: Aubry was initially against, but she got maneuvered into them by perfidic rivals… BTW, I used not to like Aubry, although I always admired her dad, a European lion…)

    Secondly: GDP per head in Ireland was the lowest of the EU, now it’s the highest (except for conniving tiny Luxembourg). This was obtained, as I said, two ways: transfers from the richest countries, and then dirty financial tricks.

    Thirdly, and this is the crux. a) There is no crisis, as the Irish government points out; they have enough cash for a few months. So why the rush?

    b1) oops: the euro is too high again. We don’t have QE2, but we have ideas about how to lower the euro.

    b2) Francogermania had enough of the tax avoiding tricks that made Ireland so rich. They want to force-feed Ireland with a rescue package, so that they own the Irish digestive track, thereafter. The Irish have no stomach for that. But resistance is futile: France and Germany have made up their mind. no more improvisation, and humoring blatant Trojan Horses of international plutocracy.

    The French, especially writers and other thinkers love Ireland. After all, they used to be all Celts. Michel Houellebecq can sit pretty in Ireland, 180 days a year, paying no taxes. It’s less exhilarating when it’s Microsoft doing something like that.

    A cooling of some French economic circumstances would be appreciated. The real estate market there keeps on climbing relentlessly, second only to Hong Kong, to my chagrin, as the prices in the best places are stratospheric. And of course France is bigger than Hong Kong…

    The French gov is thinking about a new tax to pay for senior care (above 85 years; done generally at home, with state replacing family if need be). The real problem is youth unemployment (25%), and supposedly Sarkozy is going to do something…

  31. It is widely accepted through theoretical physics, and astrophysics that “Dark Matter” makes up approximately 90% of the known universe, and that “Dark Energy” is what facilitates this paradoxically and mysterious symbiotic chemistry expanding the universe. The universe has been expanding for ~ 14.5 billion years, and as it expands further out light is non-existent. Why is that? Simply put…the dark matter & dark energy create light thus giving us baring as to the age of our young infantile universe…but it is the dark matter/dark energy that can put a stop to gravity thus making light a non-factor with regard to the 4th dimension? Quite literally as the universe expands outward from earth ~ 9 billion years it running out of momentum so to say…as light bends it accelerates its speed for gravity is retreating to the 5th dimension,,the next big bang! PS. You’ll never find any documentation regarding research papers on the web…those only can be accessed at ???

  32. Hahahah, pseudoscience mumbo-jumbo all sounds the same. Mysterious, almost based on the verifiable stuff but not quite, borrowing heavily from the phrasing of religion but using the vocabulary of science.

    Torsion fields would be fiercely researched as the next phase of computer technology, if they were real. Instead, we’re currently working with quantum computers, fiber optic computers, and holographic storage. All cutting edge tech based on proven science, but all bound firmly by the speed of light. If verifiable scientific principles existed to allow information surpassing the speed of light, quantum computers would be an anachronism already. They aren’t, so it’s a safe bet torsion fields checked out as a dead end the first time a non-crackpot tested them.

    Additionally, you can find plenty of research papers on the web. Most universities and peer publishing organizations simply lock them up behind pay walls to generate funds. I don’t necessarily agree with locking up the knowledge of human kind in that fashion, but it’s not some kind of conspiracy to “hide” the knowledge. Just a way to fund research and services.

    Spend an afternoon on wikipedia digging through science articles. You’ll find reams and reams of mathematical proofs and verifiable tests on subject after subject. Torsion fields have no such proofs anywhere. And dark matter doesn’t create light. The only known interaction it has with baryonic matter is through gravity. Ditto for dark energy.

  33. @ 3-D___Gone way off topic…but? :-)) Quoting Einstein: “as you approach the speed of light, time slows down and mass increases (obvious?) – this holds true for black holes ***[our universe vacuum cleaners…recycling to an adjoining parallel universe…or just shuttling/repackaging the mass through these (blackhole anomalies) unknown outlets (which by the way switch on and off?) beyond our future universe feeding/manifesting the evolution of our expanding universe?]***, because of it’s mass, time slows as one accelerates toward the event horizon and time stops at the event horizon (now why is that?) – the reason why time slows down as you approach the speed of light is because the mass increases, that is more mass means less time” end quote____Now ask yourself this…why does mass slow time (obvious?) – we all know that time is least…that is to say it flows (string/wave/particle/etc.,?) more slowly where gravity is the greatest (approaching the precipice of a black hole?) – without mass time is not curved…and we all know the shortest distant between two objects is a curve…having said this, “time equates to our novice minds as light? Note: If light/time stop at the event horizon of a black hole the dark matter/dark energy must be “All Consuming”, thus somethings gotta give…and it certainly ain’t dark matter/dark energy? Ref: Higgs Bosom (the God Particle); N.A. Kozyrev’s “Time Emanation”; W. Reich’s “O-Emanation” or “Orgone”; M.R. Blondlot’s “N-Emanation”; H.A. Nieper’s “gravity field energy”; T.T. Brown’s “electrogravitation”, “fifth force”; etc., etc.,etc. Thanks 3-D and Thankyou Simon and James for putting up with my off-topic comments. :-))

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