Why Ireland fears a bailout

by on November 16, 2010 at 9:00 am in Current Affairs, Political Science | Permalink

Ireland fears the punitive terms of a bailout as it would have to give up partial sovereignty over its finances and could be forced to raise corporation tax.

The story is here.  Note that casting your financial lot with the EU is especially problematic if you don't expect the EU to be so influential five or ten years down the road.  Obviously the Irish are betting against the idea of a major step toward EU fiscal union and correctly so.

Addendum: Finland weighs in.

1 WhyNot- November 16, 2010 at 5:36 am

Ireland should just repudiate–I don't understand the weird view that lenders have to be made whole "or else." They took on risk–let them bear it.

2 JCL November 16, 2010 at 6:30 am

How much do we think Ireland raising its corporate tax would affect American businesses via the tax loophole?

3 Bill November 16, 2010 at 7:04 am

Roubini in today's FT points out that the bank bond and shareholders should take a haircut. The Irish didn't suddenly become profligate, but their banks did.

Here is the link: http://www.ft.com/cms/s/0/b3dbaa92-f0f7-11df-bf4b

Putting sovereign finances at risk to support banks has to change. Give the shareholders and bondholders a haircut first.

4 Slocum November 16, 2010 at 11:34 am

Doesn't Ireland know that lots of influential people have a stake in them not sinking – aren't they just negotiating the best deal here?

Yes. It seems as though Ireland has in its power (by threatening to withdraw from the Euro zone) the ability to precipitate a series of events that could easily mean the end of the Euro. How badly do France and Germany want to preserve the Euro (and protect the solvency of their banks)? Badly enough, probably, for the Irish to be able to drive a hard bargain.

5 Jeff Thompson November 17, 2010 at 4:45 am

A question: If Ireland is in a state of "crisis" with debt at 30% of GDP, why is the United States not even in a greater "crisis" with debt at 90% of GDP? Are we sticking our heads in the sand, or is it really less of a problem for the U.S. than Ireland?

Also, my sincere appreciation for your excellent blog.

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