[patrickk]

I posted this comment on Reddit a while back in response to another person's question, trying to sum up the whole situation with the Irish bank bailout (a bit wordy and a bit of a rant I'm afraid, but hopefully informative).

The former Irish Minister for Finance, Brian Lenihan (now deceased), was coerced into putting together a dodgy back-room deal on the night of September 29 2008 where all senior Irish bank debt was guaranteed. So the Irish state was on the hook for all the insane property development loans that went on during the boom years. This single, disastrous meeting is the reason Ireland is fucked. The country ran budget surpluses up til that point. A misleading report from Merrill Lynch London office and some bullshit from senior Irish bank chiefs ensured that the deal was done.

You can read the full story here: http://www.vanityfair.com/business/features/2011/03/michael-... There was a separate piece of legislation enacted so that depositor's funds would be guaranteed up to the value of €100,000. The bank debt write down and the depositor's guarantee could've easily been done separately, but the Minister's hand was forced.

There was an article about it a little while ago shich i cant dig up, but relatively, your obligations were HUGE

Absolutely staggering proportions. Before this nonsense started in 2008, our Government debt-to-GDP ratio was ~80% - high but sustainable, afterwards it skyrocketed to 120% (unsustainable). The only other economies in this territory were Iceland, who reneged on their obligations, and Greece, who will restructure as sure as night follows day. Also before 2008, the country ran budget surpluses, it's not like the country was fiscally irresponsible like Greece.

Is that still the case? Have things gotten angrier at all recently, or is this just a quiet resolution and no one is protesting much?

What happened was we booted out the political party who were responsible for the mess - they were in bed with property developers (got political donations etc) and so did nothing to keep the construction sector in check, resulting in an out of control property bubble. When the recession kicked in, we elected in another coalition of 2 different political parties - the MAIN promise of theirs in the run up to the election was to "burn the bondholders". They utterly failed in this regard. Irish politicians are little bitches who want to be seen as "good little Europeans" and get a pat on the head from the big boys in Brussels (EU seat of power). There's no sense of saying "fuck it, we're not taking this shit, the Irish people deserve better". The injustice of the way this mountain of debt is being heaped on the people, forced to bail out our retarded banks and getting austerity on top of that is unbelievably galling. I heard that a trader on the west coast of America made something like $700m on betting that the Irish government would 'honour' our debt. Ridiculous. People are extremely angry underneath the surface. In Ireland, we tend to bottle up the rage instead of the riots you see in the southern European countries. What will happen is my generation (I'm 25) will largely emigrate to the UK, Australia and Canada. Some will eventually return, more won't. That is the traditional Irish "valve" to release the pressure - emigration, not riots.

The loss of sovereignty is a massive blow to the Irish psyche. There's an old cliche in Ireland - "700 years of oppression", i.e. alluding to the fact that we were under the thumb of British royalty for centuries. The first real taste of serious wealth that Ireland had in it's free history, and it was pissed away by our own corrupt politicians, and now Berlin and Brussels gets to dictate what we do.

Having said all that, many people are too comfortable and non-activist for anything crazy to happen, like forcing the government to write off the property gambling debts, riots, or leaving the Euro-area. I do think the Irish state will be forced to write down some/all of the debt eventually, as we can't export fast enough to grow GDP to pay off the debt. I kind of wish people would freak out, go fucking ballistic and get this shit sorted quickly (the debt that is), cos we're a great little nation and there's some great factors we have in our favour (young, english speaking workforce, highly educated, pro-business, really low corp. tax, etc.) that would mean the economy would quickly take off again if we could get this fucking debt off our back.

[rpm4321]

Thanks for your post, appreciate it. One follow up question if you don't mind? If Ireland ditched its "debts" and left the EU, in addition to the negative credit rating impact, wouldn't it significantly lessen US companies' interest in investing and hiring in Ireland? My impression was that EU membership was one of the primary drivers of this phenomenon, in addition to the tax situation and great workforce.

[patrickk]

> If Ireland ditched its "debts" and left the EU, in addition to the negative credit rating impact, wouldn't it significantly lessen US companies' interest in investing and hiring in Ireland?

This is a complicated question. I'll try to answer it but it's very difficult as there's really no historical precedent for this kind of situation.

- Ireland ditching it's debts and leaving the EU are mutually exclusive. Ireland could technically renege on it's obligations and still remain an EU member (the EU has no formal mechanism for the exit of a member, believe it or not, so we couldn't be forced to leave. Hence some of the confusion over Greece's future EU status.) There is a 'troika' of institutions overseeing Ireland's bailout program - the ECB (european central bank), EC (european commission) and IMF - and they do not all speak with the same voice. The IMF was of the opinion that Ireland should be given more of a debt 'haircut' to make the debt more sustainable. That opinion was rejected by the Irish government strangely (I believe the government doesn't want to look bad to Germany, who are effectively paying the bills, hence "the Irish government being europe's little bitches" comment). I think action will be forced eventually, the debt is completely weighing down the economy and the situation can't continue. The Irish government actually has the power to unilaterally renege on the debt, but they're scared to do so. The phrase used by cowardly Irish government officials and Eurocrats is that "the economic bomb won't go off in Frankfurt, it will go off in Dublin" if Ireland suspends debt repayments.

- There is zero political will to actually leave the EU. There are some economists saying that Ireland's best option would be to leave the EU (http://www.independent.ie/opinion/columnists/david-mcwilliam...). The Irish business community is quite conservative and would be dead against leaving the EU. Any political party that suggested this would be committing political suicide.

- There is historical precedent for countries writing down sovereign debt and then growing quickly once feed from the shackles of debt - Argentina is one example. How much it would impact US companies' willingness to invest in Ireland if Ireland a) wrote off some/all bank debt b) left the EU or c) both, is very hard to say. On the one hand, leaving the EU would mean returning to the old Irish pound, meaning a currency devaluation is once again possible - making the country more competitive internationally, boosting exports. We wouldn't have to listen to the French Government moaning about Ireland's low tax status (France has an official corporation tax rate, then the effective rate which companies actually pay, which I believe is lower than Ireland's tax rate). A debt write down would mean no more idiotic wasting of tax revenue into the black hole of our banks. However on the other hand, for a small country to receive such a negative credit downgrade could make matters dramatically worse in the short-term, potentially leading to serious political upheaval. Transaction costs would be increased as companies have to convert Irish pounds into Euros when selling into Europe.

This is a long-winded way of saying it's complicated, no historical precent, so I'm just speculating at best.