Nat O'Connor: The Government's four-year recovery plan doesn't address the issue of the banks. Without addressing this issue, the credibility of the whole plan is undermined. Richard Douthwaite presented Four Truths about the loan negotiations with the ECB, IMF, etc. These remain valid concerns.
In a context where orthodox monetary policy is no longer available to individual eurozone member states, Douthwaite presents 'deficit easing' as a novel suggestion.
In brief:
Truth 1. If Ireland has to pay interest on the loans being negotiated at a rate which exceeds the rate at which the economy grows over the next few years, it will make the country's situation worse, not better.
Truth 2. Any grant or loan to Ireland will only buy time for the eurozone to come up with a cure for the whole sick system. Ireland should not be asked to bear more than its proportionate share of the cost of gaining this time which is for the benefit of every euro user.
Truth 3. The ECB bears a large share of the responsibility for the regulatory failure which led to the property bubble.
Truth 4. There is a Plan B. Ireland doesn't have to take anything that is offered. It can leave the euro quickly and easily.
In a separate article, Douthwaite proposes a solution in the form of 'deficit easing' (full paper). His proposal is for money to be distributed directly to member states by the ECB (through a form of quantitative easing) and used to pay down national debts and to reduce borrowing requirements for expenditure.
It is increasingly clear that the Irish crisis is a eurozone crisis. And Ireland is caught in a damning position. Either we 'go it alone' and insist on major restructuring of the bank's debts we've taken on - and do huge damage to the (mostly European) banks that lent to our banks - or else we do huge damage to the people in Ireland by taking on huge private debts in order to save - for now - other banks in the eurozone. This is a lose:lose situation, and we need to find another way.
A road to a solution is equally clear. When we pooled our sovereignty into the euro currency and ECB, we took an 'we're all in this together' approach. We need to return to the basic principle of eurozone solidarity; and indeed wider European solidarity. Ireland should push for a eurozone-wide solution that would also aid Portugal, Greece, Spain - but equally Germany and all the rest. Some form of quantitative easing (or equally 'deficit easing') could be a major part of the solution.
The logic of the deficit easing proposal is interesting, although the politics would perhaps be more difficult to manage - what would stop politicians wanting to use this approach more and more? Nevertheless, orthodox monetary policy is not available, and innovative approaches should be given serious consideration.
Dr Nat O'Connor @natpolicy
Nat O’Connor is lecturer in social policy in UCD’s School of Social Policy, Social Work and Social Justice and part-time policy specialist at Age Action Ireland. Previously Director of TASC, Nat also led the research team in Dublin’s Homeless Agency.
He has taught politics and social policy since 1999. He has a PhD in Political Science from Trinity College Dublin and a MA in Political Science and Social Policy from the University of Dundee. He is a Fellow of the Higher Education Academy (UK), a member of the National Economic and Social Council (NESC) and chairperson of the Irish Social Policy Association (ISPA). You can find him on LinkedIn (natoconnor) and TwitterX @natpolicy
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