.Business writers are already pouring cold water on Europe's $100-billion-plus bailout of Ireland. On Sunday, the European Union and the International Monetary Fund agreed to inject funds into the island nation to stabilize its economy and prop up its banks. The EU hopes to prevent a repeat of Greek's debt crisis, which weakened the euro. Will the bailout work? Here's what skeptics are saying:
- The Austerity Plan Is Terrible, writes Joe Weisenthal at Business Insider:
Austerity is a lousy way to get to deficit reductions. Remember, austerity is what Ireland has been trying for years. Suddenly it will work now, and get the deficit to 3% of GDP? Please. [Also] it's still fundamentally based on this idea of preventing panic by promising support as necessary. And yet already Portuguese CDS are wider. This idea gets nobody excited.
- The Bailout Is Way Too Small, writes Felix Salmon at Reuters: "By all accounts it’s going to be less than €100 billion — probably in the €80 billion to €90 billion range — and that sum has to cover the country’s entire borrowing needs for the next three years." He cites the New York Times explaining that "15 billion euros was likely to go to backstop the banks [and] 60 billion euros would go to Ireland’s annual budget deficit." This just isn't enough money, argues Salmon:
That leaves a few billion euros left over for one-off expenses and emergencies — but I worry that Ireland’s banks are going to need a lot more than €15 billion. The banking system is on its knees and it has roughly half a trillion euros in assets. The black hole in commercial real-estate alone — over and above the €50 billion or so that the Irish government has already shelled out — is estimated at somewhere in the €20 billion to €25 billion range and that’s before you even start thinking about residential mortgages:
- The European Central Bank and the IMF Are Inept, writes Dean Baker at The Guardian:
When a firefighter or medical team make a rescue, the person is usually better-off as a result. This is less clear when the rescuer is the European Central Bank (ECB) or the IMF...
The failure of the ECB or IMF to take steps to rein in the bubble before the crisis has not made these international financial institutions shy about using a heavy hand in imposing conditions now. The plan is to impose stiff austerity, requiring much of Ireland's workforce to suffer unemployment for years to come as a result of the failure of their bankers and the ECB.
While it is often claimed that these institutions are not political, only the braindead could still believe this. The decision to make Ireland's workers, along with workers in Spain, Portugal, Latvia and elsewhere, pay for the recklessness of their country's bankers is entirely a political one. There is no economic imperative that says that workers must pay; this is a political decision being imposed by the ECB and IMF.