A post from Aidan Regan of UCD here, a bit in advance of the “Oh Shit!” moment we had these last couple of days. It contains a good explanation of what the European Financial Stability Fund is, why Ireland will need it and what this will mean for the country.
Private investors are striking against Ireland because they would prefer to buy bonds issued from Europe than Ireland. It provides them with greater insurance on their losses via the €770bn member state guarantee. Capital is snubbing Ireland because it is waiting for the insurance provided by the EFSF-German guarantee fund.
…in practice, the adjustment strategy being adopted by the government is probably not that different to what we can expect when the EFSF is activated. But, one thing for sure, if the EU-IMF demand anything, it will be more not less, particularly in the area of taxation and labour market reform. This is the reality of not having an independent monetary policy; all adjustment falls upon labour, those dependent upon social protection and taxation. It is going to be an extremely turbulent 6 months and one can only speculate as to what type of political resistance the EU-IMF will induce.
