The Irish dream big, perhaps too big
Many young people are leaving the country forever and leaving Ireland with a pile of debt
One of many new houses empty and unsold around Ballymahon, Ireland, is shown in this January 2010 file photo. Recently, Ireland has built too much and borrowed too much, and it's in real financial trouble, writes guest blogger Bill Bonner.
Don Duncan / Freelance / File
鈥�Ireland is broke,鈥� said our taxi driver.
We like to ask cab drivers about the economy. Not that they understand anything any better than the average central bank economist. But they talk to people. Without cameras or tape recorders in the background. And they have their own businesses too. When times are good, people take cabs. When they are bad, they take the bus.
鈥淢y bloody income is down by 50%. Most of my fares are people coming or going on business鈥r just people going to work. But now, who鈥檚 doing business? Who鈥檚 working?
鈥淭he developers and the bankers ruined this country. They pushed up prices. And then, what was the government doing? They haven鈥檛 a clue. The guy who is head of Ireland鈥檚 financial affairs is a former schoolteacher. I鈥檝e got nothing against schoolteachers, but what does he know of finance? And he鈥檚 over there negotiating with the Germans.
鈥淭he Germans know what they鈥檙e doing. They don鈥檛 want to finance our mistakes. And who can blame them?鈥�
In many ways, the Great Correction is hitting Ireland harder than the USA. If the US overbuilt, Ireland overbuilt even more. If the US over-borrowed, Ireland borrowed even more. And if the USA got lost in debt finance, Ireland got lost in dreamland.
鈥淲e are dreamers, I guess. And storytellers. It鈥檚 a status thing in Ireland. You go into a bar. Look for the fellow who has the most people gathered around him. He鈥檚 the big man locally. Not the doctor. Not the politician. Not the rich man.
鈥淲e鈥檙e dreamers and storytellers鈥nd then, we come to believe our own stories. 鈥�
The Irish dream big. The republic is not big enough for them. So they go abroad. Only 4 million of them are left on the island. Some 60 million of their descendants 鈥� the Irish diaspora 鈥� live in America, Canada, Australia, Argentina and elsewhere. Your editor is one of them.
For the first time in more than a decade, the Irish are emigrating again.
鈥淚f you鈥檙e a smart young man or woman, what else can you do? It鈥檚 sad for their families. But Ireland has nothing to offer them. They have to leave. And usually, they don鈥檛 come back.鈥�
Yesterday, we went to open an account at the Bank of Ireland.
鈥淭hey must have been glad to see you,鈥� said a colleague. 鈥淵ou must be the first person to open an account in years. The rest of us are taking our money out. Every bank in Ireland is insolvent, and everybody knows it.鈥�
鈥淲ell, there was no line,鈥� we replied.
Instead, we got to the bank door at 10AM. We rang the doorbell (the bank didn鈥檛 open until 10:30, but we had an appointment). A dignified older man in a sweater and a tie opened the heavy oak door.
We stated our business.
鈥淥h鈥es鈥� She鈥檚 waiting for you.鈥�
In front of us was an attractive woman of about 30. Well dressed. Well coifed.
鈥淲ill I lose my money if the bank goes broke?鈥� I asked.
鈥淗a ha鈥� There鈥檚 no chance of that,鈥� said the woman with a look of earnest intensity that you usually associate with time-share salesmen and insane people. 鈥淚 guess you would say that we鈥檙e already broke, technically. But we have a deal with the European Central Bank. We have a line of credit. We won鈥檛 default. And even if we did, your money is protected by an Irish government scheme that protects depositors up to 100,000 euros.鈥�
鈥淲ell, isn鈥檛 the Irish government insolvent too?鈥�
鈥淗a ha鈥� Well, I suppose that it is too. Technically. But so is your American government, isn鈥檛 it? But this is just a technicality. The whole system is not going to go broke. We鈥檙e supported by Europe. And Europe does not want to see Ireland default.鈥�
She was right about that. Europe does not want to see Ireland default. Because the debts of Ireland are the credits of French and German banks. If Ireland were allowed to default, the whole kit and caboodle could come apart.
Ireland can鈥檛 borrow on the open market. Lenders are not idiots. So the Micks and Paddies borrow from the European financial authorities. The low rates keep Irish households above water. Most mortgages here are 鈥渇loating rate鈥� loans. If the rates were allowed to float up to market levels, Irish households, banks, and the government itself, would all sink.
For the moment, Europe lends at low interest rates to the Irish鈥ho keep their banks and voters from going bust. The banks, in turn, keep their creditors from going bust. And so the whole system, in Europe as in America and Japan, depends on a continued flow of artificially cheap money
And everyone seems to think this flow of cheap money can continue indefinitely.
Welcome to the modern political economy鈥� Small, isolated problems are rolled up into bigger and bigger ones. Soon, the danger is not to a bank鈥r even to a nation鈥ut to the entire system.
We don鈥檛 know when it will stop. Nor do we know exactly what will make it stop. But we鈥檙e sure there鈥檚 money to be made betting on it.
------------------------------
海角大神 has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.