Tuesday, March 18, 2014

O segredo da recuperação irlandesa?

Morgan Kelly warns our real economic crisis will begin if ECB credit stops (The Irish Times, via The Irish Economy):

First the boom, now the boomlet. Ireland really is growing again, with employment – the only reliable measure of activity in an economy like ours – up over 3 per cent in the past year. At the same time, the interest rate on Irish government debt has fallen sharply and house prices, in a few places anyway, have started to recover.

Not only do we seem to be recovering modestly, but the economic collapse after the bubble, although pretty horrifying, was a lot smaller than expected. The gigantic building industry imploded but, beyond that, there was surprisingly little contraction in other sectors.

This is all very puzzling. Conventional economic wisdom suggests it takes you about a decade to recover from a big credit bubble like ours. If you are lucky. And if you are like Japan you can still be floundering 25 years on. But here we are, hardly three years on from being cut from the wreckage of the Celtic tiger and requiring huge transfusions of European money, in something less than rude good health admittedly, but unquestionably back from the dead.

The source of Ireland’s seemingly miraculous resurrection lies in two magical syllables. No, not “En-da” but “Dra-ghi”.

Faced with the very real prospect that the euro would collapse under the weight of insolvent banks and governments in the European periphery, ECB president Mario Draghi undertook to do “whatever it takes” to save the euro. In practice, this has involved a policy of low interest rates, and unlimited credit lines for governments and banks.

Since Ireland popped down the green pipe into the world of Super Mario we have found ourselves effortlessly jumping over our crushing national debt, insolvent banks, a massively indebted private sector, and all the other obstacles to recovery.

It is not because anyone believes the Government when it says that our national debt of 125 per cent of GDP is sustainable and that Ireland can now borrow at low rates, but because the market knows that Draghi has underwritten the value of our debt.

In normal circumstances, no sane person would keep their money in banks haemorrhaging capital as fast as Ireland’s through mounting bad loans. But in a world where banks can effectively borrow unlimited amounts at near zero interest rates from the ECB, notions like capital adequacy become anachronistic.

It is not only the Irish Government and banks that have Draghi to thank for hauling their chestnuts out of the fire, but the private sector as well. For households and firms struggling under the huge loans they took on back when we all thought we were rich, low interest rates and banks that can hardly be bothered to chase down bad loans have made the post-bubble hangover a lot less agonising than might have been feared.

Nowhere is Draghi’s wizardry plainer than in our exit from the bailout. The sale in December of €500 million of government bonds at rates slightly above German ones was trumpeted here as national resurrection and in Berlin as vindication of the view that European peripherals can only recover when they start to admit the error of their spendthrift ways. However, behind the narratives of redemption and a triumphant return to the markets, with international financiers vying to lend to a newly creditworthy Ireland, the dismal reality is that these bonds were bought entirely by the State-controlled (or effectively controlled) banks AIB and Bank of Ireland with money slipped into their pockets by the ECB.

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