Johnson, Boone, Kinsella

In case you missed it yesterday, Peter Boone and Simon Johnson (former IMF chief economist) of Baseline Scenario and The New York Times on Ireland…

Until very recently, Ireland was seen as Europe’s poster child of prudent reforms. Mr. Trichet himself highlighted Ireland as an example that Greece and other financially stricken nations should follow. His message was simple: If only Greece, or Portugal or Spain would cut public wages, reduce the budget deficit and make structural reforms as Ireland has done, then growth could occur and default prevented.

However, it is now apparent that Ireland has not done enough to stem its march toward further crisis. The ultimate result of Ireland’s bank bailout exercise is obvious: one way or another, the government will have converted the liabilities of private banks into debts of the sovereign (that is, Irish taxpayers), yet the nation probably cannot afford these debts.

[…] Ireland, simply put, appears insolvent under plausible scenarios with current policies. The idea that Ireland, Greece or Portugal can cut spending and grow out of overvalued exchange rates with still large budget deficits, while servicing all their debts and building more debt, is proving – not surprisingly – wrong. Such policies leave nations burdened with large debt overhangs that effectively tax businesses and borrowers – because interest rates must stay high to reflect risk.

Ray Kinsella is worth reading in today’s Irish Times too.

IN THE absence of transformational economic and social policy changes, a sovereign debt crisis is now all but inevitable. Whether such a crisis would ignite, or be part of, a more generalised crisis in the euro zone is not yet clear.

Oh… and FT Alphaville describe nicely the happy merry-go-round that is Nama

Nama haircuts have been increasing, which means Irish taxpayers save on Nama expenses, but banks receive less in Nama bonds. That in turn, means they have less to pledge at the ECB’s liquidity facilities, and puts further pressure on Ireland’s financial sector — just as the banks need to refinance.

As well as picking up on a BNP Paribas note on Nama…

For this system to work, the ECB must provide unlimited access to its refinancing facilities. A couple of weeks ago, ECB’s Weber surprised markets by suggesting that unlimited access to ECB funds should be extended until the end of the year. The motivation for Weber’s intervention is that he wants to defend German interests. What Germany fears most is the activation of EMU’s EUR440bln rescue package. Once activated it invites abuse in the hope that surplus countries such as Germany will ‘pay the bill’. EURGBP longs remain our favourite trade.

S’fine though honest… it’s just a little banking collapse, it’s still good, it’s still good. It’ll be the cheapest bailout in history, we’re still good, we’re still good…