Wolf on Ireland

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Martin Wolf’s take on the Irish crisis is predictably intelligent. As he says:

It was not the public but the private sector that went haywire in Ireland and in Spain.

The crisis is a huge challenge for Ireland, which should surely convert unsecured bank debt into equity rather than force its citizens to bail out all the improvident lenders. But the Irish case also shows that the German view of how the eurozone should work is mistaken: fiscal sloppiness is not the main problem and fiscal retrenchment and debt restructuring are not the sole solutions. One cannot learn from history if one does not understand it.

To put it another way, as Philip Stephens said in  the FT yesterday — you can’t cut your way out of such a crisis. The Germans and vast numbers of economists have to earn that. When they do the crisis will be over. Until then it will get worse.

I said much the same thing in my early comments here.


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