The Irish story began with a genuine economic miracle. But eventually this gave way to a speculative frenzy driven by runaway banks and real estate developers, all in a cozy relationship with leading politicians. The frenzy was financed with huge borrowing on the part of Irish banks, largely from banks in other European nations.
Then the bubble burst, and those banks faced huge losses. You might have expected those who lent money to the banks to share in the losses. After all, they were consenting adults, and if they failed to understand the risks they were taking that was nobody’s fault but their own. But, no, the Irish government stepped in to guarantee the banks’ debt, turning private losses into public obligations.
Before the bank bust, Ireland had little public debt. But with taxpayers suddenly on the hook for gigantic bank losses, even as revenues plunged, the nation’s creditworthiness was put in doubt. So Ireland tried to reassure the markets with a harsh program of spending cuts.
Step back for a minute and think about that. These debts were incurred, not to pay for public programs, but by private wheeler-dealers seeking nothing but their own profit. Yet ordinary Irish citizens are now bearing the burden of those debts.
Or to be more accurate, they’re bearing a burden much larger than the debt — because those spending cuts have caused a severe recession so that in addition to taking on the banks’ debts, the Irish are suffering from plunging incomes and high unemployment.
It's amazing that the Irish people are allowing themselves to get fleeced on behalf of the banks. This isn't like the U.S. and the bailout--the Irish are facing higher taxes, higher unemployment, and a lower standard of living--all to bail out millionaires and billionaires. Krugman goes on:
But Ireland is now in its third year of austerity, and confidence just keeps draining away. And you have to wonder what it will take for serious people to realize that punishing the populace for the bankers’ sins is worse than a crime; it’s a mistake.
I'd go a bit further than Krugman. What will it take for the people at large to realize that fundamentalist global capitalism doesn't work except for the wealthy? When will people begin to demand accountability from corporations and the political class? When will people begin to demand employment and the restoration of the social safety net? I'm certainly not seeing it yet, neither in the United States, nor Ireland, nor anywhere else. The average everyday person still believes that free market capitalism is their friend. Despite all the evidence to the contrary.