Ireland And An Unstable Europe, Again

According to Bloomberg (citing the RTE website), the Irish Prime Minister said in Toyko today that Ireland may need to call in the IMF if economic conditions continue to deteriorate.  According to RTE (Ireland’s public broadcaster), correcting their earlier story, he said no such thing, at least in public.

The broader issue, of course, is that Ireland is not alone in facing economic difficulties – the risk of default, potential debt rollover issues, and credit ratings are likely to move together for a range of weaker countries in Europe’s eurozone.  But the presumption has been that the IMF would not get involved in eurozone countries.  Any change in this view would throw us back to thinking in terms of the 1970s (when the IMF lent to the UK and to Italy) or the 1930s (when IMF loans could have helped, but of course were not available). Unless you really intend to bring in the IMF for loan discussions, I would suggest it is a bad idea to use those three letters in any conversation, public or private.

Remember that in early October Ireland destabilized the eurozone by suddenly offering blanket bank deposit guarantees.  The apparent lack of policy coordination within the eurozone continues to be worrying.  These countries really need to start working together more closely.

Relatedly and consistent with my presentation last week, Greece’s sovereign credit rating from S&P was lowered today.

Originally published at the Baseline Scenario and reproduced here with the author’s permission.