Niamh Hardiman on the Irish financial crisis, over at Crooked Timber:
Ireland’s recent €85bn bail-out package negotiated with the IMF and the EU is discussed in terms that verge on the apocalyptic. The rescue was supposed to serve as a break against the wildfire of market bondholder panic. And yet the upward trend in Portuguese bond rates has scarcely been slowed. Beyond Portugal is the much larger Spanish economy. Portugal, like Greece and Ireland, could probably just about be rescued within the terms of the current emergency scheme. It is becoming increasingly possible that the bond markets may make it too difficult for the Spanish government to refinance its loans and to raise new money on government bonds. If this were to happen, the European Financial Stability Fund would come under extreme pressure. And worse, if it is not possible to restore confidence in the stability of the Euro, there seems little reason why other countries may not also be in trouble. Spain is now where the line in the sand must be drawn. But we have heard this before. If Spain is vulnerable, why not Italy; and if Italy, why not Belgium, perhaps even France. Little wonder that the imagery of contagion, of financial plague, is brought into play.
The suddenness of the Irish deal has taken public opinion by surprise, causing shock that we have been plunged into this regime of austerity, and a smouldering anger about the terms on which the deal has been done. The terms of the bail-out will transfer all the hardships onto the taxpayers and citizens: reactions include the views that we have been held to ransom, we cannot afford this rescue package, it is a bad deal for Ireland.
Ireland’s fiscal crisis is largely caused by the collapse of the house price bubble and over-reliance on revenues from construction-related activities. This is bad enough, but by itself it would be difficult but manageable. The millstone around the neck of the Irish people is the vast scale of the crisis in the banking sector. Ireland’s banking crisis is not primarily about complicated and risky financial products: it is a common-or-garden result of reckless lending for property development and an inadequate regulatory regime.