Quote Originally Posted by wiggin View Post
Did you even read what I've written? I specifically offered two viable options - either breaking up the euro or centralizing economic policy as well as monetary policy. I'm not taken in by some systematic english language bias here, I'm just illustrating a difficulty with the current management of the EMU, not the concept of the EMU itself. I couldn't care less what you guys do on that front.


Here's my problem with this reasoning - did Ireland have a choice, really, about bailing out their banks? And was the EMU completely blameless in the size of bailout needed?


Now we're getting somewhere. So the real issue isn't whether euro monetary policy was involved in the huge bubble in Ireland (it was), but whether Ireland should have bailed out their banks. I personally think the answer is clear - saving the financial system of a country from wholesale collapse is inevitably cheaper than the alternatives. Furthermore, it's often possible to recoup most of the bailout costs through later provisions (e.g. TARP hasn't been too pricey).

The bottom line is that Ireland is too small to fix the financial sector in its country. IMO this isn't something wrong with Ireland - many countries weight industries one way or another. Furthermore, they're particularly susceptible to bond market vigilantes because their bond market is tiny in comparison to much of the world. Lastly, guaranteeing Irish access to credit costs peanuts to 'core' countries in the EMU and generally saves the entire region from serious knock-on effects - hell, the euro and European markets have been seriously battered by uncertainty over Ireland (just as with Greece months ago) - said uncertainty mostly due to foot-dragging by a few key countries (ahem, Germany).
Yes I read what you wrote, I am just no longer willing to allow for any talk of the EMU needing to disband. I am however also aware of the fact that this crisis may actually force the parts of Europe most unwilling to turn the EMU into a monetary zone the way a monetary zone needs to work. Ireland in my eyes is one of the countries that deserves to be hit with a big stick as long as they keep whining about sovereignty.

Yes, the bubble was possible because of low interest rates. But that doesn't mean the Irish government couldn't have prevented it from happening. But rather than doing that they decided to fuel the bubble. If pretty much everybody who bought a house in the last 4 years is under water and 5% of your home owners already isn't able to meet payments, then you know that somebody was ostentatiously looking the other way when things went wrong. Ireland then got in the situation that it needed to save its banks but really couldn't. Now we have reached the point where the rest of us have got to sort the mess they made out. It is going to cost us, that much is clear. And since it is going to cost us, we pretty damn well should set the rules of the game.

By the way, Germany was at no point alone when it was dragging it heels. The idea of giving help to the PIIGS is extremely unpopular in a bunch of countries. If it weren't for the fact that we'd rather see them taken care of in an orderly way politicians in a lot of countries could win serious votes by not allowing help.