Why Are The Irish Not Rioting And Insulting The Germans Yet?
At least that is the question posed by Ambrose Evans-Pritchard in his column today, where he accurately points out that while a bankrupt Greece can get away with borrowing at 5% courtesy of the IMF bailout package, as of today Ireland's 10 year rate is 5.48%. Ambrose attributes this to the Greeks savvy knack of scaring the shit out of Europe by "dilly-dallying on the first set of austerity measures, and – not to be
too diplomatic about it – by insulting the Germans with demands for war
reparations" and also being on the verge of destroying its own country, by Molotov Cocktailing its own parliament, if its doesn't get its way. And the real kicker: as a member of the IMF, and a lender to its various soon to be multi-quadrillion last ditch rescue facilities, Ireland, whose borrowing cost is higher, is subsidizing the Greek interest and, therefore, way of life. Nuts you say? Ambrose agrees: " It has moral hazard written all over it, and shows what happens once a dysfunctional system twists itself into ever greater knots rather confronting the core issue." But such is life in the Keynesian endspiel, where the worst housing data ever recorded is sufficient for a green close: bizarro is now mainstream.
More on A.E.P.'s utter confusion at Europe neverending insanity.
Ireland must now pay more than Greece to borrow.
Dublin has played by the book. It has taken pre-emptive steps to please the markets and the EU. It has done an IMF job without the IMF. Indeed, is has gone further than the IMF would have dared to go.
It has imposed draconian austerity measures. The solidarity of the country has been remarkable. There have no riots, and no terrorist threats.
Yet as of today it is paying 5.48pc to borrow for ten years, or near 8pc in real terms once deflation is factored in. This is crippling and puts the country on an unsustainable debt trajectory if it lasts for long.
Yet Greece is able to borrow from the EU at 5pc and from the IMF at a staggered rate far below that (still too high for the policy to work, but that is another matter). These were the terms of the €110bn joint bail-out.
To add insult to injury Ireland is having SUBSIDIZE Greece to meet its share of the rescue fund.
I am sure you can all see the absurdity of this. It has moral hazard written all over it, and shows what happens once a dysfunctional system twists itself into ever greater knots rather confronting the core issue.
Ambrose summarizes as follows: "If I were Irish – (and I suppose in a sense I am: Sir John Parnell was
my great, great, great grandfather) – I would be a little annoyed." Of course, Americans, who are the biggest contributor to the IMF are logically the biggest providers of backstop capital to Greece, and all the other soon the be semi-defaulted in a Schrodinger sense, European countries. But at least we have 10 Year spreads that have never been so low... And will persist at current and tighter levels until the bond bubble finally blows up and the endspiel truly ends.