It Pays To Riot

Friday, August 27, 2010
By Paul Martin

by Ambrose Evans-Pritchard

Ireland must now pay more than Greece to borrow.

Dublin has played by the book. It has taken pre-emptive steps to please the markets and the EU. It has done an IMF job without the IMF. Indeed, is has gone further than the IMF would have dared to go.

It has imposed draconian austerity measures. The solidarity of the country has been remarkable. There have no riots, and no terrorist threats.

Yet as of today it is paying 5.48pc to borrow for ten years, or near 8pc in real terms once deflation is factored in. This is crippling and puts the country on an unsustainable debt trajectory if it lasts for long.

Yet Greece is able to borrow from the EU at 5pc and from the IMF at a staggered rate far below that (still too high for the policy to work, but that is another matter). These were the terms of the €110bn joint bail-out.

To add insult to injury Ireland is having SUBSIDIZE Greece to meet its share of the rescue fund.

I am sure you can all see the absurdity of this. It has moral hazard written all over it, and shows what happens once a dysfunctional system twists itself into ever greater knots rather confronting the core issue.

Yes, I know that the Irish and Greek maturities are different but the fact is that Greece has extracted better terms by letting matters get further out of hand.

George Papandreou’s PASOK has benefitted from dilly-dallying on the first set of austerity measures, and – not to be too diplomatic about it – by insulting the Germans with demands for war reparations. Hotheads also set fire to downtown Athens and Thessaloniki, improving the effect.

If I were Irish – (and I suppose in a sense I am: Sir John Parnell was my great, great, great grandfather) – I would be a little annoyed.

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