Ireland, USA, whole mess - backgrounder from Bloomberg
Highlights
1) "Europe’s leaders have told themselves and their voters that most of the world’s problems are due to the meltdown of the U.S. housing market and the way in which America’s megabanks went mad. "
Ireland Crisis Might Give China Break It Seeks: Simon Johnson
Commentary by Simon Johnson
Nov. 19 (Bloomberg) -- There will be many twists and turns as the Ireland debt crisis unfolds and there’s a chance a resolution might just lead to Asia.
Here’s how I see it playing out. Ireland will accept a modest package of support from the European Union, presumably with International Monetary Fund involvement. At the same time, investors are coming to realize that Ireland’s future debt path is, beyond a reasonable doubt, unsustainable.
But a modest package will make very little difference. Ireland and its EU partners will have to resolve the underlying issues, including a restructuring of banking and sovereign debt.
We’ll get to that point because, absent a global growth miracle, the numbers are stacked too high against Ireland. But there won’t be any quick jump to a solution; it will be slow, painful-to-watch chess match in Dublin, Brussels and around the IMF headquarters in Washington, with obvious and costly spillovers to Portugal, Spain and perhaps other countries.
Why does it have to be this way? Delay and prevarication at this stage have nothing to do with any of the key players being taken by surprise. The writing has been on the euro-zone wall for at least two years.
In late October 2008, Peter Boone, James Kwak and I suggested that some European countries had given taxpayer-backed pledges to banks that had liabilities that were larger than their own gross domestic products. We also proposed the creation of a European Stability Fund with at least 2 trillion euros ($2.7 trillion) of credit lines guaranteed by all EU member nations as well as Switzerland, Sweden and the U.K. to buy time for dealing with the underlying issues of solvency in Ireland and elsewhere.
Abdicating Responsibility
The euro zone belatedly acted on that piece of advice, but the politicians in charge, both at the core and on the periphery of Europe, have refused to take responsibility for what they allowed to happen in the run-up to 2008. Europe’s leaders have told themselves and their voters that most of the world’s problems are due to the meltdown of the U.S. housing market and the way in which America’s megabanks went mad.
There is, of course, an element of truth to this. But it also misses the bigger European picture and what is blocking progress even today. The main proponents of unconstrained financial globalization may have been U.S. Treasury officials in recent decades, but it was European banks that really became too large relative to their economies. Along the way, they captured their regulators and engaged in incredibly irresponsible behavior.
read whole thing
http://noir.bloomberg.com/apps/news?pid=20601010&sid=a.yP80Naad1w
1) "Europe’s leaders have told themselves and their voters that most of the world’s problems are due to the meltdown of the U.S. housing market and the way in which America’s megabanks went mad. "
2) "As an alternative, Europe could place a call to Beijing to find out if China would like to commit some of its $2.6 trillion in reserves to keep European creditors whole. This would be an enormous opportunity for China to vault to a leading global role. Perhaps it was a good idea to place Min Zhu, a top Bank of China official, in a senior position at the IMF.
If China offered to recapitalize the IMF, become the largest shareholder, and move the organization to Beijing (according to the Articles of Agreement, the IMF’s headquarters should be in the capital of the largest shareholder), wouldn’t that make for an interesting chess game?"
Ireland Crisis Might Give China Break It Seeks: Simon Johnson
Commentary by Simon Johnson
Nov. 19 (Bloomberg) -- There will be many twists and turns as the Ireland debt crisis unfolds and there’s a chance a resolution might just lead to Asia.
Here’s how I see it playing out. Ireland will accept a modest package of support from the European Union, presumably with International Monetary Fund involvement. At the same time, investors are coming to realize that Ireland’s future debt path is, beyond a reasonable doubt, unsustainable.
But a modest package will make very little difference. Ireland and its EU partners will have to resolve the underlying issues, including a restructuring of banking and sovereign debt.
We’ll get to that point because, absent a global growth miracle, the numbers are stacked too high against Ireland. But there won’t be any quick jump to a solution; it will be slow, painful-to-watch chess match in Dublin, Brussels and around the IMF headquarters in Washington, with obvious and costly spillovers to Portugal, Spain and perhaps other countries.
Why does it have to be this way? Delay and prevarication at this stage have nothing to do with any of the key players being taken by surprise. The writing has been on the euro-zone wall for at least two years.
In late October 2008, Peter Boone, James Kwak and I suggested that some European countries had given taxpayer-backed pledges to banks that had liabilities that were larger than their own gross domestic products. We also proposed the creation of a European Stability Fund with at least 2 trillion euros ($2.7 trillion) of credit lines guaranteed by all EU member nations as well as Switzerland, Sweden and the U.K. to buy time for dealing with the underlying issues of solvency in Ireland and elsewhere.
Abdicating Responsibility
The euro zone belatedly acted on that piece of advice, but the politicians in charge, both at the core and on the periphery of Europe, have refused to take responsibility for what they allowed to happen in the run-up to 2008. Europe’s leaders have told themselves and their voters that most of the world’s problems are due to the meltdown of the U.S. housing market and the way in which America’s megabanks went mad.
There is, of course, an element of truth to this. But it also misses the bigger European picture and what is blocking progress even today. The main proponents of unconstrained financial globalization may have been U.S. Treasury officials in recent decades, but it was European banks that really became too large relative to their economies. Along the way, they captured their regulators and engaged in incredibly irresponsible behavior.
read whole thing
http://noir.bloomberg.com/apps/news?pid=20601010&sid=a.yP80Naad1w
posted by Ed E. Trebor at
7:55 a.m.
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