It’s not just the ‘celebrity’ economists at fault
One of the more notable contributions to the debate has been that of former taoiseach Garret FitzGerald in his column last Saturday.
Mr FitzGerald claims that the international markets lack the capacity to assess adequately the financial situation of smaller states like Ireland and often rely on ill-informed media reports and ‘celebrity’ economists who have been seeking publicity by claiming that Ireland’s problems are so great that the country will eventually have to default. Ouch!
I am not sure what qualifies one to be called a ‘celebrity’ economist. Mr FitzGerald seems to believe that it is somebody who contributes to national economic debate using the medium of the media. If that is the case, then he probably would qualify as one himself.
It strikes me that his contribution smacks of intellectual arrogance. I think it is ill-serving for somebody who does not agree with the views of another to engage in a form of name calling.
Back in 1992/1993 during the currency crisis, when an Irish pound devaluation was totally inevitable and totally desirable, official Ireland tried to demonise and belittle those who called for devaluation.
Of course when the devaluation did eventually happen and set the scene for the export-led boom thereafter, none of the demonisers had the good grace to stand up and admit they were wrong. It will probably be the same this time around.
For what it’s worth, my belief is that Ireland’s current and impending debt level is simply too high for the country to bear and is probably not sustainable or manageable. I think the IMF believes this to be the case also. Rather than be so prescriptive about this, maybe it would be worthwhile to consider what we mean by the word manageable.
If Ireland increases taxes dramatically, cuts spending dramatically and destroys quality of life through the withdrawal of vital social services, then the existing and potential debt levels might just be manageable. However, do we want that?
If one accepts that the level of debt is just too high, then one logically needs to think about solutions. I do not believe that a unilateral decision to share the burden with the senior bondholders is possible, simply because the EU and ECB will not allow it. Unfortunately, they can dictate these issues because they are providing the vast quantity of short-term liquidity that is keeping our beleaguered banking system alive.
Sovereign debt default is also not an easy option. One should look at the experience of Argentina after the sovereign debt default to gauge the possible impact of such a course of action.
Europe will have to come up with a solution for Ireland, Portugal, Greece, Spain and possibly Italy eventually. The eurozone sovereign debt crisis has exposed the deep and predictable flaws in the whole EMU infrastructure and a solution will require very fundamental reforms that will undoubtedly further dilute national sovereignty.
Unfortunately, a solution is now in the realms of high politics rather than economics. If Europe does not come up with a solution, then Ireland and some others will be forced to default in some form. I am not advocating this, but am simply stating it as a worryingly high probability.
The Exchequer returns on Monday last showed we recorded a deficit of €7.1 billion in the first three months of the year. This is massive by any standards. The bottom line is that this is being added to our debt. It is not sustainable or manageable, so please, Mr FitzGerald and others, don’t seek to shoot the messengers.
