Ireland vs. European Stability, Redux

By Simon Johnson

According to Bloomberg (citing the RTE website), the Irish Prime Minister said in Toyko today that Ireland may need to call in the IMF if economic conditions continue to deteriorate. According to RTE (Ireland’s public broadcaster), correcting their earlier story, he said no such thing, at least in public.

The broader issue, of course, is that Ireland is not alone in facing economic difficulties - the risk of default, potential debt rollover issues, and credit ratings are likely to move together for a range of weaker countries in Europe’s eurozone. But the presumption has been that the IMF would not get involved in eurozone countries. Any change in this view would throw us back to thinking in terms of the 1970s (when the IMF lent to the UK and to Italy) or the 1930s (when IMF loans could have helped, but of course were not available). Unless you really intend to bring in the IMF for loan discussions, I would suggest it is a bad idea to use those three letters in any conversation, public or private.

Remember that in early October Ireland destabilized the eurozone by suddenly offering blanket bank deposit guarantees. The apparent lack of policy coordination within the eurozone continues to be worrying. These countries really need to start working together more closely.

Relatedly and consistent with my presentation last week, Greece’s sovereign credit rating from S&P was lowered today.

Comments

[Socialism c...:]

Can noone see what is coming? The IMF and UN to the "rescue" -- One World Government!! Stock up on hard goods, guns and ammo. Global war is coming like never seen before.

Jan 14 03:04 PM

[Alpha Econ:]

The story itself might be true, but it is hard to avoid the reality that a likelihood of Ireland having to ask ECB/IMF for funds is rising by day. Here is a really good insight into what the Celtic 'Slump' Tiger might expect to hear from Strauss-Khan's team if Cowen calls for funds:
trueeconomics.blogspot...
In current conditions, there is simply no way of avoiding this outcome...

Jan 14 06:27 PM

[Alpha Econ:]

Ah, an while we are on the issue of S&P ratings for Greece - if anyone missed last week's ratings update on Ireland, see here:
trueeconomics.blogspot...
same source, different issue, but again pointing to the fact that either ECB will chip in to 'save' Irish Exchequer from itself or it will be IMF's job.

Jan 14 06:30 PM