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Cold facts of how we could be 'Iceland inside the euro'


Wednesday January 14 2009


Could the unthinkable come to pass here? Could Ireland default on its sovereign debt? The answer is yes. Such a disaster is now quite possible. In the same way as a family can end up losing the house, the car, everything, a country, too, can fail to make its repayments. At the moment, such thoughts are heresy; but so, too, was questioning the property boom a mere four or five years ago.

Back in 2003 or 2004 when people questioned the property boom and its driver, the debt splurge by the bankers, we were ridiculed and dismissed. We were labelled mavericks. We were told that it was "dangerous" to even suggest such things because we might "talk down the economy".

I remember being labelled "unpatriotic" by a politician in 2004 following an appearance on 'Prime Time' when I described the property market as a "scam" operated by "an unholy alliance of bankers and property developers".
We now know that this is exactly what it was, it was a scam perpetrated by a small minority who made fortunes, aided and abetted by a frenzied population caught in a mania and presided over by Fianna Fail. It is extraordinary that the party which lays claim to the Rising, could end up advocating property purchases in Bulgaria using borrowed money as the highest form of national patriotism, but that's where we got to!

So the moral of that tawdry story is that "thinking the unthinkable" while not popular, is necessary. If we are forewarned, we are forearmed. Make no mistake about it; it is entirely possible that Ireland will default on its sovereign debts. We are hurtling in that direction. Foreign investors are on notice and last week, they demanded a huge interest rate premium from Ireland before they gave us cash. We paid 4.7pc to borrow money on Thursday last. In contrast, Germany paid 3.2pc. This implies an Irish interest rate premium of over 40pc for two states that are in the same currency union. So lenders are worried that Ireland will not be able to pay its way.

More here, including a very funny cartoon:

Cold facts of how we could be 'Iceland inside the euro' - Analysis - Independent.ie