Overlooked in all the turmoil in the Middle East is the outcome of the vote in Ireland.
Fianna Fail, the party that was in charge of negotiating the "bailout" of Ireland after the financial crisis, was thrown out of power by the historic vote. Over 70% of Irish voters turned out to make sure that Fine Gael (the Irish center-right party) and Labor (center-left) took control of the government.
Fine Gael had campaigned on renegotiating the terms of the EU bailout that would have effectively put 80% of the Irish budget by 2012 to paying back the bailout of the banks. Fine Gael and the people of Ireland have said, "thanks, but no thanks".
Fine Gael also will be insisting that BANKS that lent the money to failed institutions take a haircut on the money that is owed to them. This act alone will have reverberations throughout the EU and the world. Expect that the Euro will take a hit and that other countries that accepted bailouts from the EU and IMF will follow suit. Spain, Portugal, and Greece will be watching the outcome of the Ireland situation quite closely.
For more on this story, see these links:
Reuters story on the elections.
Irish Default the Best Option
Irish Government on Collision Course with the EU
Right now, this is the biggest story that most major news outlets in America are missing (CNN has it in it's "Other News" section barely visible on its front page. Drudge has it at about the same place as CNN). That's not surprising given the situation in the Middle East, especially in Libya. However, the fact that the Irish situation could spread to other European countries could have a greater effect on the world's economy than $100/barrel oil.
What has become clear is that the people (ie voters) have become fed up with policies that bail out banks on the backs of taxpayers. The new Irish government is about the show the world how to force senior bondholders to take a haircut on a bad investment.
James
For a revealing look at just how bad Ireland’s financial problems are, read Michael Lewis's recent article on the subject for Vanity Fair. Lewis, who also wrote the book The Big Short on the American financial crisis, is among the best for making complicated financial issues into fascinating exposés.
ReplyDeleteIn Ireland, Lewis finds a housing bubble the likes of which even we Americans struggle to fathom. “In an era when capitalists went out of their way to destroy capitalism,” he writes, “the Irish bankers set some kind of record for destruction.” These hapless bankers loaned billions of dollars seemingly to any property developer who walked in the door. The result: one particularly hapless Irish bank, Anglo Irish, reported losses of €34 billion (a figure that, accounting for population and exchange rates, is more like $3.4 trillion to American ears).
I'll check out the article. It's funny this incestuous relationships between Wall Street and Government. Clearly the banks made bad bets.
ReplyDelete