How’s That Austerity Working Out?
The BBC reports that Irish Republic 85bn euro bail-out agreed
European ministers have reached an agreement over a bail-out for the Irish Republic worth about 85bn euros ($113bn; £72bn).
The deal will see 35bn euros go towards propping up the Irish banking system with the remaining 50bn euros to help the government’s day-to-day spending.
An average interest rate of 5.8% will be payable on the loans, above the 5.2% paid by Greece for its bail-out.
Ireland got in this mess by guaranteeing the bad loans of its banks, part of the absurdity of socializing debt while privatizing profits. It compounded the problem by introducing austerity which has made a bad economy even worse by increasing unemployment and reducing the demand needed to get the economy moving.
Even though it is in this mess, the Irish government refuses to raise its absurdly low rate of business taxation. It is still in thrall to concept that all business thinks about is low tax rates. Businesses move money through Ireland, but they aren’t investing in Ireland. Despite the reality that this same situation exists in tax havens throughout the world, no actual investment in the local economy, the myth persists.
This deal punishes the Irish people while bailing out those responsible for the mess, the banks. Iceland, by contrast, told its banks to drop dead, and is recovering from the mess. BTW, capitalism requires the bad banks to go out of business, that is how the “invisible hand” regulates things.
17 comments
Ireland could have also recapitalized their banks by printing more money… there’s nothing wrong with printing new money to replace money that just evaporated because the loans backing it just evaporated.
Oh wait. The gullible sods bought into the Eurozone, and now *GERMANY* controls their money supply. Ooops! Guess we know who won WW2, eh? 😈
BTW, Iceland’s situation was entirely different. The deposits in their banks were in European currencies, not in the native Iceland currency, so they could not simply print the problem away even though they had their own currency. But your note about the relative responses of the two governments to not being able to print their banks’ problems away is certainly instructive, especially for the free market types out there who for some reason seem to always be looking elsewhere whenever government interferes in the free market by bailing out the high and mighty (but Great Penguin forbid that they notice a little guy getting a bailout, they’re on that situation like a duck on a june bug!).
– Badtux the Snarky Penguin
The lack of a sovereign currency is impoverishing them, just like it has his US states. That was also a prime reason they shouldn’t have acted to bail out the banks on their own revenues. It was a euro problem and the European central bank should have been responsible, not individual governments.
Oh, yes, the Germans are leading to charge to punish the Irish, not acknowledging the part that German banks played in what happened – throwing money at Ireland in unsustainable quantities because of the real estate bubble. There is no shared pain for German banks in this bail out.
The ECB is largely made up of large chunks of the Bundesbank, the German central bank, due to the size of Germany’s economy at the time the Eurozone was created. So it is dominated internally by the Germans in the same way that its external politics are being dominated by the Germans. It is *not* an accident that it is based in Frankfurt, Germany.
The best thing the UK has done economically over the past twenty years is reject joining the Eurozone. The Austerians may refuse to use the power of the printing press over some deranged notion that a deficit of 6% of GDP being printed away (i.e., a 6% increase in real money supply) would somehow create 90000% hyperinflation (WTF? What kinda drugs are they smokin’?!), but at least it remains an option for the UK if the Austerians get kicked out of office once their policies prove to be disastrous (as they always have been in the past, and there’s no reason to think they’ll be any l ess disastrous today). The Irish and Greeks, on the other hand, signed away their printing presses, so they have some hard choices to make… and seem to be making all the wrong ones, for all the wrong reasons.
– Badtux the Economics Penguin
Duff, grab a prayer board and walk along like the monks in Monty Python, whacking yourself in the head between repetitions of this simple maxim:
GOVERNMENTS. ARE. NOT. HOUSEHOLDS.
Is the pain getting through to you yet? No? Whack some more. Yes? THINK for a few seconds. We have the same bullshit from Republicans over here, comparing a government budget and balance sheet with a family household budget and balance sheet. THEY DON’T WORK THE SAME WAY. (Whack yourself again…) THEY DON’T WORK THE SAME WAY. (And again…)
Governments not only can but must print money in times of economic free-fall. But you and Herbert Hoover would rather see people starve than violate your crack-brained ideology. Thank the good Dog you’re a citizen of a country other than mine.
Steve, the lunatics live in a universe where the printing press apparently was never invented. Certainly not *THIS* one.
BTW, if my business is not doing well and my credit lines are getting close to being maxed out, yes, it *might* be a darned good idea to take on *more* debt, if the debt is going to be to expand my business to make it more profitable. If I have a small restaurant and just can’t seat enough people to break even, for example, taking on a large debt to build a new dining room to expand my seating area may very well be the correct solution. But according to the Austerian lunatics, I should instead “quit my big-spending ways” (what, quit buying food for the kitchen and napkins for the dining area?) rather than spend money on things that will make my restaurant more profitable. Their deranged lunacy doesn’t even make sense from a *business* perspective, where taking on more debt during hard times may indeed be the correct solution if it allows the business to meet customers’ needs better and thus be more profitable.
Substitute “nation” for “business” and it remains the same. Clearly taking on more debt isn’t the answer for *all* hard times, but debt is the way that capitalism creates future production using the income produced by that future production, and thus allows capitalism to be the most nimble way of meeting customer needs of any economic system ever invented. The Austerians are inherently anti-capitalist with their anti-debt screeds, while professing, ridiculously, to be capitalists — while ranting against the most fundamental instrument via which capitalism operates! What a bunch of morons!
– Badtux the Capitalist Penguin
I would think that the fact that the credit card was maxed out by the banks adding an extra $25,000 fee without your knowledge or permission, would cause most people to be upset, but apparently not austerians. That’s what happened to the Irish.
Badtux, you’re right, the German banks are holding €109bn in bonds from the Irish banks, and that’s why this thing is structured the way it is, to protect the bond holders. They aren’t bailing out Ireland, they’re bailing out German, British, and French banks who are in trouble.
I see Krugman’s been all over this (as expected of course). 🙂 He has several posts up about it. I like this one, short and too the point. 🙂
Not Waving But Drowning
And this:
The Irish Non-bailout
To quote Krugman: “What’s the Gaelic for “You’ve gotta be kidding”?”
Oh! This was a gen from Krugman (and I get the impression he’s also not at all impressed with Obama!) 😉
Lacking All Conviction
I won’t quote the whole post (you can click on the link above), but this is the money quote! 😉
Krugman sees this as another bank bailout, and doesn’t understand why the banks don’t have to pay the price of their gambling. He knows what needs to happen – grow the GDP so the economy is large enough to deal with its debt. What they are doing is locking them into a death spiral. It is moving the date of the disaster further out, but isn’t dealing with the problem.
Krugman seems to think that Obama is getting bad advice, while I and others think Obama is getting the advice he wants, to do what he wants.
Yeah, I think you are correct about Obama. I’ve come to the conclusion (some time ago actually) that there is little difference between Obama & the Bushmoron. Maybe Obama has a slightly higher IQ and is a better orator (which isn’t saying much, Daffy Duck & Porky Pig are better orator’s than the Bushmoron. Obama certainly isn’t even close to someone like JFK for eg.) The other major difference between Obama & Bushmoron is that (as far as I can see) Obama succeeded in every endeavor since College before life in Politics (whereas, of course, Bushmoron failed in everything he ever tried). Obama was an editor of the Harvard Law Review and ended up as President and editor-in-chief supervising some 80 editors. Given that he graduated magna cum laude (J.D.) from Harvard, he’s not stupid. I know Michelle worked for Daley, and yet everything I read about their time in Chicago say that Obama wasn’t part of the Chicago Daley machine. Obama’s Presidential fund raising campaign was run by Schmidt, who was Daley’s chief of staff. Then there was David Axelrod (Obama’s campaign manager), Jesse Jackson and Bobby Rush… I find it doubtful that Daley had no influence. *shrug* Maybe Obama is simply a consummate hypocrite, or a complete fool (one can be very intelligent and still be a complete fool). When you study Obama’s history, especially during the 90’s, it’s completely at odds with what he’s doing as US President. *shrug* Maybe he hears *little voices* in his head too, but doesn’t admit it to anyone. 😉
I dunno… I don’t get it. Given his experience and history, Obama should be doing a hell of a lot better than he is! It’s like… when he became Prez, he inherited some of Bushmoron’s genes or something! 😐 Crazy.
Frankly, in many ways Obama is a neocon wannabe. If they would show him the tiniest bit of respect he would jump to their “team” in a heartbeat.
Actually, if you look at his voting record as a state senator in Illinois, he has always voted as a Republican, not in accordance with his public speeches. He’s a conservative through and through, which is to be expected given that he was raised by a banker, his grandmother.
If the Republican Party wasn’t so full of folks who prance in the woods with pointy caps and bedsheets, Obama probably would have run as a Republican in the first place, as a “uniter, not divider”. Hmm, who else do I recall who ran for President with such a slogan? I think that was back in, wait, was that in 1999/2000?!
– Badtux the Snarky Penguin
You know Badtux… I was thinking just that as I posted my comment above. 😀 Glad I decided not to now. 🙂 Yeah
I’ve decided he’s just a fool. He’s really the “nowhere man”. Nobody likes him. Most Dem voters realize now he’s a neocon wannbe and hypocrite, and the neocon’s can’t stand him for a whole lot of reasons, even though he’s on their side!I guess that’s what people would call a *loser*.
If he had settled somewhere other than Chicago, he probably would have been a Republican, but you can’t get elected as a Republican in Cook County, so he took the path of least resistance to his personal goal. When he was elected, he didn’t have to pretend any more, so he hasn’t bothered.
Maybe the British philosopher John Stuart Mill got it completely right when he stated:
“I never meant to say that the Conservatives are generally stupid. I meant to say that stupid people are generally Conservative. I believe that is so obviously and universally admitted a principle that I hardly think any gentleman will deny it.”
Sounds totally correct to me. Especially when one listen’s to any one of the Conservative leaders (and commentators) speak. 😉 I see some commentators (many supposedly non-conservative) are trying to give some of them an out by opining that they may have some form of dyslexia (which is curable). Sorry, but I agree with Mill… They are quite simply completely stupid. And that is incurable (except by death). Of course, that them becomes a dilemma, as the case can be made that death is too good for them! The dilemma can easily be resolved when one considers that whilst it may be too good for them, it would be exceedingly good for every one else on the planet! (in the interest of the common good, and all that). 😈
It’s always been exceptionally curious to me that American’s seem to have no problems killing, or causing the deaths of, thousands and even millions of (probable) innocents globally, but have some strange aversion to it at home, even when a case could easily be made for it. Of course, many use the excuse of *law* and even the Bible, at home. But totally disregard both when it comes to the rest of the World. There is a word for that…
I am told constantly that Conservatives are in the minority. If that is true, why are they constantly elected to cause so much pain and suffering, including to the morons that elect them? If the majority are not in fact stupid, then they must be masochists that love pain and suffering and there is some kind of *group think* that the rest of the World must suffer with them. They really are the only two options. *shrug*
Whatevah.
/rant 😛
We once had a range of political opinion, but the Republicans are in the middle of a spasm of enforced orthodoxy that reduces their candidates to the lowest common denominator of the Tea Party – political correctness enforced by the mob.
The media are so afraid of the new conservative inquisition that they avoid criticizing Republicans for anything. The media won’t point out that the Republicans are blocking everything and refuse to compromise in any way.
The majority of people just give up on politics and try to get on with their lives.