What If Ireland Defaults? (3 page)

Anthony George Phillips
was born in Dublin and is currently resident in Buenos Aires, Argentina. He has worked in more than twenty countries on four continents. He is a journalist and analyst in political economics and ecology, and editor of the online magazine
DensidadRegional.org
. He is currently completing a Masters in Economics in the University of Buenos Aires on the subject of financing alternative energy policy and other alternative developments using autochthonous finance. He is a researcher on international public finance and debt-related issues in South America and holds a BSc in Mathematics, Information Sciences and Geology from University College Dublin.

Sam Roberts
is the urban affairs correspondent of the
New York Times
. He is the co-author of a biography of Nelson Rockefeller, the author of
Who We Are: A Portrait of America
(1994),
Who We Are Now
(2004),
The Brother: The Untold Story of the Rosenberg Atom Spy Case
(2001) and
A Kind of Genius
, about making government work (2009). An anthology of his podcasts, titled
Only in New York
, was published in November 2009. He is the editor of
America's Mayor: John V. Lindsay and the Re-Invention of New York
(2010). He is the host of the
New York Times Close Up
, an hour-long weekly news and interview programme on New York 1, the all-news cable channel.

Joseph E. Stiglitz
is university professor at Columbia University, the winner of the 2001 Nobel Memorial Prize in Economics, and a lead author of the 1995 Intergovernmental Panel on Climate Change report, which shared the 2007 Nobel Peace Prize. He was chair of the US Council of Economic Advisors under President Clinton and chief economist and senior vice president of the World Bank from 1997 to 2000. In 1979 Stiglitz received the John Bates Clark Medal, awarded biennially to the American economist under the age of 40 who has made the most significant contribution to the subject. He was a Fulbright Scholar at Cambridge University, held the Drummond Professorship at All Souls College, Oxford, and has also taught at MIT, Yale, Stanford and Princeton. He is the author most recently of
Freefall: Free Markets and the Sinking of the Global Economy
.

Marc Tomljanovich
is an associate professor of Economics at Drew University, a liberal arts college in the United States. Marc's research focuses on applied macroeconomic issues, including the impact of monetary policy structures on financial markets, the influence policy makers have on regional and national economic growth, and the effects of options listings on underlying financial instruments. Marc's work has appeared in numerous peer-reviewed journals, including
American Economic Review
,
Southern Economic Journal
,
Journal of Futures Markets
,
Empirical Economics
and
Contemporary Economic Policy
. Marc also is a regular weekly contributor to the
Wall Street Journal
. In 2006 he was the recipient of a National Sciences Foundation grant that helped fund an annual national workshop for macroeconomics research at liberal arts colleges. In 2010 he was chosen as teacher of the year at his institution.

Huginn Freyr Þorsteinsson
is a philosopher of science and adjunct professor at the University of Akureyri. In the aftermath of Iceland's financial meltdown he became the adviser to Iceland's Minister of Finance from 2009 to 2011. He is currently the adviser to the Icelandic Minister of Economic Affairs and the Icelandic Minister of Fisheries and Agriculture.

John Walsh
is the editor of
Business & Finance Magazine
. He took up this position in March 2008 after serving as deputy editor since 2006. Prior to joining
Business & Finance
, Walsh had been in London for over seven years. He trained as a journalist with the publishing firm Incisive Media. Subsequent positions included economics/markets reporter with Bridge/Reuters, sub-editor with the
Financial Times
and corporate correspondent with the energy news service Argus Media. Walsh has also worked for the BBC on its flagship current affairs programme
Panorama
and the
Today
programme on BBC Radio 4.

Introduction

Brian Lucey
,
Charles Larkin
and
Constantin Gurdgiev

Brian is professor of Finance, Trinity College Dublin and a columnist with the
Irish Examiner
. He blogs at
brianmlucey.wordpress.com
. Charles is research associate, School of Business, Trinity College Dublin. Constantin is adjunct professor, School of Business, Trinity College Dublin, and a director of St Columbanus AG, a Swiss asset management company. An internationally syndicated newspaper columnist, he blogs at
trueeconomics.blogspot.com
.

The Irish financial, fiscal, banking and economic crisis of 2008–? has already been a defining event in modern Irish history. For the first time the state was required to seek the assistance of the IMF and the ECB/EU, finding itself locked out of the financial markets. From a position as the poster-boy of Europe, a good example, it slipped in three short years to being a basket case, financially a horrible warning.

The essays collected in this book represent a cross-section of views on how, why, and on whose watch this crisis emerged, as well as a varied discussion on how best to emerge from it. The concentration here is primarily macro-financial. That is to say, we for the most part do not see essayists discussing the very real unemployment, competitiveness or other economic issues, except
en passant
. That is not to suggest that the authors are either unaware of or indifferent to these, rather that the focus here is on the interplay of the two aspects which precipitated the loss of Irish sovereignty: the banking and sovereign debt crises.

The overriding sense from reading the essays is of an economy on a knife edge. Given favourable economic circumstances, especially in regard to a variety of external factors which will influence exports, given a favourable political climate in the EU with regard to dealings with the legacy bank debt, and given domestic economic growth, then the debt levels which Ireland now faces are sustainable, in that a default is not probable. However, as will become clear, we consider, in reading these essays, these conditions are by no means guaranteed, and in that case restructuring of debts may become inevitable. Reading the essays by Gurdgiev and Coffey in the section on Ireland, one is struck by two factors. First, the authors are in broad agreement on the underlying macroeconomic trajectories and, second, they are at some variance on the implications. The sense of a narrow path, one side of which leads to default the other to a long grinding haul is palpable. Kinsella and Greene complete this section by examining the role that Europe has had and will likely have in the resolution of the Irish crisis. Both emphasise the central role of the bank guarantee and the role of the European context, and both conclude, reluctantly it seems, that given where we are now it is better to ‘stay the course' than to default.

How we got here is discussed in the prologue to many of the essays, but a good overview of the particulars of the Irish case can be found in the scene-setting essay by Barrett, while the Irish crisis is contextualised in terms of previous research and international findings by Stiglitz. From Stiglitz we see that the Irish crisis can almost be seen as a ‘stylised fact', with almost every feature found elsewhere in crises found here, while in other crises some but not all of these features are present. A clear reading of this will show the importance of a historically informed research sense in policy making. Barrett, for long a critic of excessive deficits and government inefficiency, has a strong scene-setting piece, where a plea for better governance is loud and consistent.

What if we do default? Gurdgiev, in his discussion on Russia, Phillips on Argentina, Roberts on the New York fiscal crash of the mid-1970s and Tomljanovich in discussing municipalities all show that this is by no means costless. Increased poverty, reduced services, a longstanding scar on the financial psyche of the population, and political casualties are the common denominators of the short term after a default or crisis. In the medium and long term the removal of the debt burden can be beneficial, but again this requires the good governance discussed by Barrett to be implemented. An ongoing experiment in partial default, the Icelandic banking situation, is discussed by Byrne, with the conclusion that, akin to the possibly apocryphal story of the Chinese general's view on the effect of the French Revolution, ‘it is too early to tell'. What this does show us however, is that there are always alternatives, there is never only one game in town, and that politicians of courage who are in tune with the desires of their voters can take nations through crisis situations which would derail other polities.

In the section on perspectives we find a wide variety of views. Mathews, who has been one of the foremost critics of how the banking crisis has been handled, renews his call for debt writedowns, noting the combined debt levels across public and private sectors are of a level that runs the risk of crushing the economy. Having commented for years from the perspective of a banking consultant, his views now have added force as those of a parliamentarian. Walsh critiques the way in which the media handled, or was collusive in ramping up, the bubble and muses on the ability of the Irish media to ‘step up to the plate' in fostering a robust and honest debate on issues around debt and default. Dowling draws on behavioural and sociological perspectives on finance, noting that community and community strength are conducive to economic as well as personal well-being and suggesting that one unexpected upside of the crisis is likely to be a resurgence of this spirit. Deeter echoes in his discussion the concerns of Mathews regarding mortgage issues, and notes that the experience of other countries is, as noted in Phillips, that lending conditions, including mortgages, generally deteriorate. Brown draws on a lifetime's experience in the markets, laying out in very stark terms the way in which market traders perceive the Euro. He is not sanguine about the survival of the Euro in its present form but again the common theme of the book emerges – default (which in his analysis would be alongside any breakup of the Euro) is neither simple nor painless. O'Callaghan details the extreme pragmatisim of the IMF in his analysis, concluding that debt discussions are not a morality play and that any decisions on default or restructuring must be conducted with the ultimate aim of rapid restoration of normal economic activity. Finally, Ganley draws lessons from early US federal history, and suggests that the banking and federalist perspectives of Alexander Hamilton provide a template for an ever closer union in Europe.

Overall we trust that this book of essays will provide both an overview of the debate on the Irish crisis and stimulate further discussion. As editors we have individual viewpoints on the default versus restructuring versus working out process. What is important in Ireland now is that viewpoints are aired, and discussed in a calm and respectful manner, and that the political system becomes more engaged with the debate. We hope this book will assist in that process.