Ireland's Future Depends on Breaking Free From E.U. Bailout

Interest-Rates / Credit Crisis 2011
May 09, 2011 - 03:27 AM

By: Christopher_Quigley

OPINION: Ireland is heading for bankruptcy, which would be catastrophic for a country that trades on its reputation as a safe place to do business, writes MORGAN KELLY

WITH THE Irish Government on track to owe a quarter of a trillion euro by 2014, a prolonged and chaotic national bankruptcy is becoming inevitable. By the time the dust settles, Ireland’s last remaining asset, its reputation as a safe place from which to conduct business, will have been destroyed.

Ireland is facing economic ruin.

While most people would trace our ruin to the bank guarantee of September 2008, the real error was in sticking with the guarantee long after it had become clear that the bank losses were insupportable. Brian Lenihan’s original decision to guarantee most of the bonds of Irish banks was a mistake, but a mistake so obvious and so ridiculous that it could easily have been reversed. The ideal time to have reversed the bank guarantee was a few months later when Patrick Honohan was appointed governor of the Central Bank and assumed de facto control of Irish economic policy.

As a respected academic expert on banking crises, Honohan commanded the international authority to have announced that the guarantee had been made in haste and with poor information, and would be replaced by a restructuring where bonds in the banks would be swapped for shares.

Instead, Honohan seemed unperturbed by the possible scale of bank losses, repeatedly insisting that they were “manageableâ€