A Bailout Invitation Worth Considering?

Not all bailouts are created equal, Irish born professor of economics, John McHale, points out in a blog post at the website www.theirisheconomy.ie, Monday. Here at Swapper we’re not sure if that’s a good thing or a bad thing. But McHale, however, thinks it might be a good thing for Ireland. He urge the Irish government to stop fooling around and get things fixed. John McHale provides important insight to what is going on in Ireland. It’s not just a matter of national finances, it’s also a matter of national pride.

“All bailouts are not created equal. An invited bailout – on the right terms, and in line with our own chosen strategy – might well be worth accepting.”

John McHale


“The increasing reliance of our banks on the ECB means we are heavily dependent on their willingness to provide extraordinary support.   But if the right deal is on offer, I worry that the government would be too inclined to resist for fear of a political backlash,” McHale writes.

After graduating at University College Cork in Ireland, John McHale earned his MBA at the same prestigious institution as FED chairman Ben BernankeHarvard University.

Today, McHale is a recognized expert on international economics, author of several books and a popular lecturer on seminars and workshops for business leaders all over the world.

He’s currently occupied as an associate professor and Toller Family Research Fellow in Managerial Economics at Queen’s University in Ontario, Canada.

Still, this blog is sceptical to the idea of developing different bailout solutions for different countries. Europe is diversified enough as it is, and to start handing out special invites to selected member states can easily spark more anger and frustration among the citizens of other troubled nations

On the other hand; whatever works….

Anyway here’s the rest of the interesting commentary by professor McHale:


Even though it’s hard to separate fact from fiction in the fast-moving bailout story, reports that the Commission and ECB are pushing for Ireland to avail of the EFSF for broader European stability reasons could change the calculation in an important way.

I still believe that Ireland’s best bet is to regain creditworthiness through a demonstration of political capacity with the budget and the four-year plan.

The alternative of being forced to seek a bailout would involve at least as much austerity as our own adjustment and would do long-term reputational damage.

But acceding to a request to avail of the facility is potentially a different proposition.   I don’t think our European partners could simply expect us to pursue a less nationally advantageous path in the interest of broader euro zone stability.   The terms would have to be mutually advantageous relative to the next best options for both sides.

One reasonable agreement that could meet this requirement is for our European partners to support our four-year plan with a credit line from the EFSF at a reasonable rate of interest (say the 5 percent rate provided to Greece).

Access to the funds would be conditional on meeting the targets under the plan, which after all is being developed with input from the Commission and the ECB.

The intention would still be to return to markets for funding rather than the use the facility, but the backstop of a dependable credit line on reasonable terms would give us a substantially greater chance of actually being able to access market funding both for the state and the banks.

Of course, it would be a mistake to exaggerate our bargaining power.

The increasing reliance of our banks on the ECB means we are heavily dependent on their willingness to provide extraordinary support.   But if the right deal is on offer, I worry that the government would be too inclined to resist for fear of a political backlash.

All bailouts are not created equal.

An invited bailout – on the right terms, and in line with our own chosen strategy – might well be worth accepting.

John McHale

 

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