Monday, November 22, 2010

Irish misery and viva Correa !


Well today the Irish situation was "resolved".. an IMF/EU bailout, with the UK and Sweden also kicking in some funds. Champagne bottles are popping with the good news. Equities and commodities are rising; Eurocrats everywhere are giving themselves high fives. Now was'nt that easy ?

Indeed.. except for the people expected to pay for this. The government of Ireland, like Greece, Iceland, Ukraine & Latvia before it, has agreed to give an ever larger portion of their budget to prop up rotten banks.. at the expense of social services and government employee wage slashes. In Latvia & Iceland, this has led to a deflationary depression where their economies shrink by at least 25% and possibly more. Greece is heading in this same direction. Worse, when their economies shrink, these governments will be forced into yet more slashes of services and wages as their revenues don't keep up with projections. It's like taking more and more plasma from a man who's losing weight.

In one respect, Ireland did actually win.. the Eurocrats were hell bent to make Ireland raise it's corporate tax from it's (EU low) rate of 12.5%, thus keeping Ireland competetive and able to attract more businesses to it's shores. This remained intact. Indeed Ireland has a host of new pharmaceutical industries about to ramp up and looks to be a good candidate to keep it's boat afloat. But it was a small victory. In the end Ireland parted with part of their hard won sovereignty and condemned their people to a decade of indentured servitide in order to bail out banks.

At some point, the people of these nations will have enough of this and will either elect or install somebody who will essentially flip off the bankers. Has this ever happened recently ? Why yes it did. Tiny Ecuador elected a Belgian educated economist and leftist Rafael Correa, in late 2006. His announced priorities were to increase social spending at the cost of debt repayments. In 2007, Correa immediately began threatening to default on Ecuador's debt. He declared these debts illegitimate due to them being induced by corrupt regimes, threatened to sue them in international courts and other actions. His intent was to get them to accept restructuring, and it worked.. Ecuadoran debts were substancially reduced. I'm still looking for the exact figures, but my understanding was that debt was reduced to something like 1/10th of face value.This was an important point. In the 1980s, Alan Garcia of Peru simply stopped paying.. and for a while it worked. But after a couple of years, Peru had to come back to the markets hat in hand, long after Garcia was gone.. with those debts intact. Correa's successors will not have debt hanging over them irregardless of whatever else he accomplishes.

At the end of the day, what Correa did has to happen elsewhere, be it by forcing them as Correa did, or by simply halting payments as did Peru. I'm aghast at what I've just written.. I sound like a revolutionary.. and in America I would be considered a "righty". But sadly mathematics don't lie.. these nations are entirely unable to pay. It's only a matter of when and how for a long list of nations, mainly in Europe.

5 comments:

  1. What I always find sad is that good men and woment die for a cause and the elitists never lose. Take them all out with a revolution and another group takes their place. The rich want it all and the rest of us can eat cake. We have to stop turning to the banksters and living beyond our means to wrestle power from them. We need to stop giving them our wealth and borrowing it back from them with interest. Starve the beast and you will free yourself from its grip. On my email the signature says "The only free man is a debt free man." That goes for women too!

    ReplyDelete