Monday, February 14, 2011

Michael Lewis on Greece & Ireland

Michael Lewis, in the current issue of Vanity Fair, investigates Ireland's debt crisis ("When Irish Eyes Are Crying"). Together with his earlier articles on Greece (October 2010, "Beware of Greeks Bearing Bonds") and Iceland (April 2009, "Wall Street on the Tundra"), Lewis has now completed a triptych on the human politics behind the national manifestations of the global economic crisis in the three hardest-hit European countries.

As always with Lewis, both the writing and the anecdotes are excellent. The Ireland story makes clear just how fateful — and how unnecessary — the government's decision to guarantee the banks really was. Investors who had been unable to dump their bonds in those banks at 50 cents on the dollar were suddenly told that the Irish government would pay them the full dollar!

Another key point Lewis makes is that those private creditors have been almost entirely repaid. What is owed now is money borrowed from the European Central Bank to make those repayments. The ECB is not in the business of debt forgiveness, but given how many of those — now happily repaid — private investors appear to have been German and French banks, it might be worthwhile spreading the pain a little.

In Iceland, voters overwhelmingly rejected a deal that would have forced them to shoulder the entire burden of guaranteeing the deposits made by foreigners in the failed Icesave bank. The more recent, renegotiated deal still insists on eventual repayment, but now under more generous terms and over a far longer period. It is not inconceivable that the Irish might be able to extract some similar lightening of their load, but first they would need to rise up to demand it.

As Lewis notes, however, the Irish appear oddly apathetic and compliant — "where's the rage?" asks the introduction to the article. Perhaps the Irish feel that their pain is more broadly self-inflicted than was the case in Iceland. After all, "Left alone in a dark room with a pile of money, the Irish decided what they really wanted to do with it was to buy Ireland. From one another."

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