Friday, November 19, 2010

Whither Ireland?

Much news in recent days about Ireland's crisis and the ongoing slow-motion run on the Irish financial system. In the NYT, Man Booker Prize winner John Banville eloquently sighs about Ireland's having become "The Debtor of the Western World." The paper also has a brief "debate" on "The Costs of Rescuing Ireland," in which Jeff Frieden highlights the striking statistic that British and German banks lent Irish borrowers the equivalent of "$100,000 for every man, woman and child in Ireland." Frieden very reasonably argues that, accordingly, those banks, and perhaps their regulatory agencies need to take some blame for severity of the current crisis.

European Union member states (both eurozone members and the United Kingdom) are less reluctant about bailing out Ireland than they were about Greece, for the very good reason that Ireland's government finances were, until the crisis, transparent and under control. The obvious downside of a bailout is that Ireland will have to accept certain conditions and will not be able to fully control its own actions. This appears to be why the Irish government has — at considerable cost — tried to hold off on asking for any international assistance.

In contrast, the EU (and especially the eurozone members) have almost been pushing Ireland to accept a bailout, due to fears of a financial crisis domino effect, with Portugal, Spain, or even Italy feared to be next. Given the scale and severity of the crisis, it now appears likely that some kind of bailout agreement will be reached. It would be nice if some of the "taking blame" on the part of creditors that Frieden calls for meant that the conditions associated with the bailout will be comparatively generous.

Be that as it may, Banville's lament makes clear that plenty of blame lies with the Irish themselves. Indeed, the folly that lead to the crisis is engagingly recounted in Fintan O'Toole's Ship of Fools: How Stupidity and Corruption Sank the Celtic Tiger. (It was reviewed in the New York Review of Books earlier this month; full article gated. O'Toole's writing about Ireland is always interesting; his The Lie of the Land: Irish Identities is also quite good.) One clear strength of Ireland so far is that its willingness to face up to the crisis and to take painful political and economic steps to address it have been far more sane than some of the folly that continues to be on display in that regard on the continent and in the United States.

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