Monday, November 22, 2010
Ireland gets bail-out, but will it help avoid bankrupcy in the end?
The problem of a heavy debt from the previous loans is solved by giving Ireland another loan - fine. But does it change anything fundamentally? If Ireland's come to be unable to pay the old debt, why should one think that it will be able to pay the new even bigger debt? More to the point, the artificial support of government bonds of Ireland will allow the country to continue to borrow money from banks. In the end it will be taxpayers of other European countries who will pay the bill, and banks will be the winners - to big to fail as ever. That's the European socialism of the 21th century. Germany produces, Ireland consumes and is called with the fabulous name 'Celtic tiger' for the indomitable pace of consumption. The problem at root is that Greece or Ireland just cannot fairly have the same leverage ratio as such developed economies like Germany, but in practice they have because they are considered equal members of the euroclub. So their bonds are considered something quite the same as debt papers of the Netherlands or Germany.