Saturday, November 27, 2010

Irish bailout talks continue

The Irish government is still trying to negotiate terms for a bailout, having become overextended in bailing out the country's banks (among other things) while trying to keep taxes low (sound familiar?) The thing is, once they get a deal, they still have to get it through their minority parliament (Irish MPs are elected by multi-member single transferable vote, so majorities are virtually unknown there). And needless to say, a vote on this issue would be a vote of confidence. The government has already agreed to call an election immediately after the necessary legislation is passed, but when huge numbers of people are demanding that the government not agree to the austerity measures the EU and other backers demand in return for a €85 billion loan, one has to wonder if the government's coalition partners are going to be in the mood to co-operate. Several of them are independents, and following a by-election this past week (which was won by Sinn Fein, incidentally) the government has a majority of two seats assuming no defections.

One thing is clear - if Ireland defaults instead of accepting the bailout, things will get very interesting very fast. A lot of bondholders will lose a lot of money, of course, and unless the sky falls on the country quite a few other countries will follow their lead, compounding the situation. My money's on the sky not falling, by the way, though times will get a bit hairy for a while.

And even if Ireland doesn't default, Thomas Walkom in the Star reports that the markets aren't optimistic about two other troubled European economies:
The markets are also betting that two other euro nations, Spain and Portugal, will drop out of the common currency, default on their debts or do both.
Walkom, incidentally, thinks default is only a tiny part of the risks ensuing from this crisis:

Yet perhaps the most distressing element of the Irish crisis is the sense of déjà vu it creates.

In the ‘30s, nations faced with angry bondholders did exactly as Ireland’s government is doing now — raised taxes and cut spending in an effort to persuade financial markets of their fiscal rectitude.

Ireland is even lowering its minimum wage.

As in the 1930s, the Irish government is portraying its actions as inevitable.

As in the ‘30s, its cutbacks — by squeezing even more spending power from the economy — will only make matters worse.

And, as in the ‘30s, governments in Ireland and elsewhere will eventually find that their voters can put up with only so much.

The Great Depression boosted the fortunes of European fascism. We don’t know yet where the politics of this slump will take us.

But unless democratic governments show some imagination, the future doesn’t look pretty. Portuguese workers staged their largest one-day strike in 22 years Wednesday to protest government austerity plans. More troubles are on the horizon.

Now as hinted at above, the main beneficiary, politically, of the crisis in Ireland has been Sinn Fein. They certainly are not what most people would call fascist, though they do have a nationalist streak that bears watching. But as things degenerate in other countries, things could go very differently. Indeed, it already has in places (notably Austria and the Netherlands).

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