Is history repeating itself?
After Greece accepted a bailout and then imposed austerity measures, to European approbation but to domestic riots, is Ireland doing the same thing?
Greece needs to restructure its debt because it borrowed way more than anyone thought it did to pay for an economy where everyone is cheating the system and expects to retire at age 50 or 55. Germans understandably objected to supporting this, so Greece adopted austerity measures in exchange for European support.
Ireland needs support for its banks because in the midst of the financial crisis the Irish government made a plenary guarantee of Irish bank debt. This kept the Euro financial system alive, as most Irish bank debt is owned by other European banks. Since the deal with Greece was penned in May, the biggest purchaser of Irish bank debt has been the European Central Bank.
The problem is that the ECB stopped buying Irish bank debt in October, and that has created a liquidity problem. As a side note, the Irish economy is 170 billion Euros. The three largest banks have three times that in assets. (In the US, the four largest banks total only half of our economy.) Clearly, Ireland needs help supporting its banks.
But help for the Irish banks has come, at the price of government austerity. Again we see protests. Will the government enact these cuts, as Greece, France, and England did, in spite of the protests?
Marx was right. The second round of history is farce.
Douglas R. Tengdin, CFA
Chief Investment Officer
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