What If Ireland Defaults?
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crisis. They find evidence that rapid growth in unhedged short-term debt exposures made East Asian markets vulnerable to sudden capital outflows and heightened the magnitude of the subsequent crisis. Moreover, financial integration limited the flexibility of the macroeconomic policy response because of the concern that interest rate reductions would exacerbate capital flight. In the aftermath of the Asian financial crisis and the Great Recession, the highly volatile, short-term, speculative
yearly income of the nation. The liabilities of the banking system matter in the consideration of any Irish default. The reason for this is simple: Ireland’s banks are guaranteed by the sovereign, and are inextricably bound to the state via the banking guarantee and by the provision of emergency liquidity assistance. Any change in the terms of debt settlement agreements between a sovereign and its creditors will perforce damage the banking sector. What default strategies might the Irish economy
collapse. Extraordinarily, the chair of Iceland’s Financial Supervisory Authority gave an interview, published in a prospectus for an Icesave branch which opened in Holland in May 2008. Even in the last days before the collapse the government affirmed that the banks would be backed by the sovereign. Iceland’s system of financial management was compromised by regulatory capture, the influence of interest groups and political participants to shape laws and regulations in a way that is beneficial to
The currency crisis in Ireland in the early 1990s was a classic example. Rather than accept a 10 per cent devaluation of the punt, the authorities embarked on a ridiculous policy of defending an overvalued currency with exorbitant rate hikes. Those who remember will recall rates of 40 per cent and more being charged on corporate loan rollovers. A six-month standoff ensued before the realisation set in that to let the currency go might be the correct solution after all. Politicians lose when they
Nouriel Roubini earned the derisory soubriquet ‘Dr Doom’ when he estimated that subprime-related losses could reach $1 trillion in the banking sector. Initially this was dismissed as alarmist scaremongering. It would prove to be a conservative estimate. Six years ago, Ireland was the fastest growing economy in the Eurozone. It had one of the soundest fiscal positions and one of the lowest debt–GDP ratios. The fact that there is now a debate about whether the country could or should default is