Roubini Topic Archive: Ireland
In the first week of March, the euro area experienced the biggest sovereign debt restructuring in history and the first ever triggering of sovereign credit default swaps (CDSs) for an industrialized country. Yet nothing happened after these events struck Greece. It was a market non-event that was fully anticipated. For the often maligned euro area […]
This week, the eurozone’s “new normal” played out as a textbook example of how short-term market concerns can have a constructive impact on Europe’s long-term economic future. Under increasing political and economic pressure from rising bond market spreads, the Irish and Portuguese governments finally “did the right thing” and took productive policy actions. The eurozone’s “new normal” (discussed here) is working as intended.
In recent days the eurozone has reentered the headlines (in USA Today, the Financial Times, and the Wall Street Journal among others) amid fears of another round in the continent’s sovereign debt crisis and rising peripheral bond spreads. Yet contrary to the tone of some commentary, this is excellent news. It should be welcomed by anyone interested in the long-term economic health of the eurozone. It means also that financial markets are finally policing the economic policies of troubled eurozone members and punishing the laggards in real time.
This week Ireland became the latest “eurozone peripheral economy” to see its sovereign credit rating downgraded by the credit rating agencies. This follows similar earlier downgrades of Portugal, Spain, and of course Greece. But this downgrading trend is actually good news for the European economy as a whole and truly excellent news for Germany. When money is tight—as it will be in Europe for the foreseeable future—the credit provider (Germany in this case) is strengthened. Its leadership role in Europe is becoming entrenched.
by Simon Johnson, Peterson Institute for International Economics and Peter Boone, Effective Intervention
Op-ed in the Wall Street Journal
February 13, 2010
Plutus, the Greek god of wealth, did not have an easy life. As the myth goes, Plutus wanted to grant riches only to the “the just, the wise, the men of ordered life.” Zeus blinded him out of jealousy of mankind (and envy of the good), leaving Plutus to indiscriminately distribute his favors.
Modern-day Greece may be just and wise, but it certainly has not had an ordered life. As a result, the great opportunity and wealth bestowed by European integration has been largely squandered. And lower interest rates over the past decade—brought down to German levels through Greece being allowed, rather generously, into the eurozone—led to little more than further deficits and a dangerous buildup of government debt.