When you read stories about Ireland's financial mess you always need to keep in mind that the population of the Irish Republic is a paltry 4.5 million and shrinking. That's well short of the almost 6-million Canadians living in the Greater Toronto Area.
It's tough to make much sense of the jackpot now facing those 4.5 million sons and daughters of Erin but it's bad and it's getting worse.
The past decade notwithstanding, Ireland is a dismally poor country. No one even knows what the true GDP will be. It's shrinking, fast, and it's got a long way to go. The country's debt, on the other hand, is headed just as fast in the other direction.
During those heady days of the Celtic Tiger, Ireland's banks plunged full bore into Casino Capitalism. A lot of speculators, mostly foreign, wanted in on the action and bought Irish bank bonds. Housing prices soared, Irish contractors had to hire armies of foreign tradesmen, and the banks lavished money for new housing developments wherever they could place it. The Irish banks along with Irish developers built houses for buyers that never were and never would be. One day everyone in Ireland was rich. The next day that bubble burst and everyone in Ireland was broke, if they were lucky, or else outright bankrupt.
As Ireland's banks wobbled the government that had sat so complacently fat and sassy thought that it could stick its finger in the dike. It guaranteed the bank debts owed to bondholders. It essentially transferred the debts the banks owed to speculative investors to the shoulders of the Irish public, all 4.5 million of them. Crisis averted they claimed - for a while. But the debts kept mounting up and the government eventually ran out of the borrowing power needed to keep the banks afloat.
Finally, no longer able to borrow, the government had to go on bended knee to the EU and IMF for bailout funds. The game was over, or so everyone thought and hoped. The Irish government pumped a total of 46-billion Euros, most of it borrowed, into the banks and thought the worst was over.
It wasn't.
An EU stress test has revealed Ireland's banks remain unviable. The government is going to have to pump in another 24-billion Euros atop the 46-billion already infused into the banks. That's a total of 70-billion Euros. That would have been half Ireland's GDP as measured back in the glory days. Reuters reports Ireland's debt to GDP will be 111% by 2013 with the extra 24-billion injection.
Some of the Cassandras who warned this mess was coming but were repeatedly scorned and rejected figure the extra 24-billion still won't do the job. They figure the Irish government will need to inject up to 55-billion Euros, not 24. If they're right, saving Ireland's banks (for what exactly remains unclear) will come in at over 100-billion Euros plus interest. For a nation of 4.5-million of anything but wealthy citizens, man, woman and child, that would be better than 20-thousand Euros per head.
It's hard to figure out how they'll even come up with the gas money to bulldoze all those empty, often unfinished and derelict housing estates that litter the countryside waiting for owners that never were and never will be. This much is clear. In order to pay off that debt, Ireland is going to be an ugly place to live for an awfully long time. I guess that's what comes of getting in over your head squandering money that you only existed in your imagination.
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