Irish Luck Passé

Ireland is struggling with the same problems as much of rest of the world: the results of greed and financial mismanagement:

Ireland’s banks were hit with downgrades Friday — one to junk bond status — as speculation mounted that an EU-IMF bailout of Ireland could require senior bondholders to help cover the massive losses.

So what does that mean? Simply put, nobody wants junk bonds–including those people who already have them. In fact, though, massive losses have already accrued to bondholders:

The agency said bonds issued by Anglo are particularly at risk of being discounted as part of an euro85 billion ($113 billion) rescue mission by the European Union and the International Monetary Fund. It says Ireland “may be forced to reconsider its current supportive stance toward Anglo’s unguaranteed debt.”

Junior bondholders at Anglo already have been forced to accept losses of 80 percent to 95 percent on their loans.

To me, however, this is not the worst when one considers the measures that Ireland is taking to address the issue. It may well be too little, too late, but the Prime Minister is trying:

In a belated attempt to convince investors it can tackle its debts, Ireland’s government detailed a raft of new measures Wednesday that will raise sales taxes, lower the minimum wage and slash government payrolls—but could also push the country deeper into economic crisis.

With Ireland negotiating an estimated €80 billion ($107 billion) international bailout, Prime Minister Brian Cowen outlined €10 billion in spending cuts and €5 billion of tax increases over four years to reduce a budget deficit that is expected to hit 32% of the country’s gross domestic product this year—10 times the euro-zone limit.

What’s bad about this? Not the fact that these measures are being taken, but that the Irish would seem to be opposed to fixing at least part of their own mess:

Sinn Fein candidate Pearse Doherty said his dominant performance in a six-candidate field showed that people want to elect a new government that will force foreign banks, not Irish taxpayers, to bear the cost of Ireland’s enormous financial crisis.

Whether Doherty is right or not about the mind of the Irish people at large, it is rather obvious that he is a member of the it-is-somebody-else’s-fault club. I’m sure he knows this, but in case he does not–banks do not bear the cost of financial crisis, people do. Forcing the Germans or anyone else but the Irish to take responsibility here may postpone the the matter for Ireland, but it cannot remove it.

Bailing out Ireland is rather like medicating a tumor with a case of Kilbeggan–the pain disappears in the short term, but the underlying problem not only does not go away, it gets worse.

One thought on “Irish Luck Passé

Comments are closed.