Today is the first blog I have written that is exclusively done on an iMac running OS X. It is a nice environment but for a long-time linux and windows user it takes a little getting used to. I have been thinking of writing a Modern Monetary Theory (MMT) guide to debt restructuring for non-sovereign nations such as those in the Eurozone who are now essentially insolvent if we exclude ECB assistance. Several readers have asked me to tease out what the implications of a major debt default in say Greece would be for aggregate demand and private wealth. I will write about that more fully another time but one thing that is certain.
MMT does not consider it feasible to run a national economy in a way that advances public purpose at all times if the national government has surrendered currency sovereignty in any way. The point is that default has to accompany EMU exit (in the case of the Eurozone nations). In thinking about that I focused my attention on some interesting data from Ireland that I have been looking at for the last week. What is clear is that Ireland has no real future while remaining in the Eurozone. It might stagger along and grow again some day. But it will be so severely damaged from dragging out the recession for its fourth year now and will similarly collapse when the next negative demand shocks hits the zone that it would be better defaulting now and restoring its currency sovereignty. The best option for Ireland is to default and exit.
In thinking about a restructuring scenario for the Eurozone nations it would not be consistent with an understanding of MMT to advocate default without exit. The EMU nations have to exit as they default and the restructuring of loans has to be in terms of their newly established local (national) currencies.
In that way, the newly sovereign national government can ensure the banking system remains liquid (in the new currency) and that workers do not lose their bank deposits etc.
Anyway, the Economist Magazine provoked me into action today. It ran a story this week (May 26, 2011) – Ireland’s chances of recovery – which carried the sub-heading “A return to decent growth is essential”.
Well you don’t have a recovery without a return to growth so I thought the title etc was somewhat twee! (not the Dutch 2).
I have written about the Irish disaster before – in this blog The Celtic Tiger is not a good example and this blog – The sick Celtic Tiger getting sicker – which both document the steady decline in the Irish economy that is being stage managed (that is, caused) by the irresponsible macroeconomic policies being pursued by the Irish national government.
The Economist writes:
According to a report from the IMF on May 20th, Ireland’s public debt, which was just 25% of GDP in 2007, is already 96% and is due to reach 111% this year … A seemingly model fiscal pupil is now at the back of the euro-area class because of the cost of rescuing Irish banks, which has reached 42% of GDP, and a collapse in national output and property-dependent tax revenues.
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