Friday, November 26, 2010

Kruman on the Finacial Crisis in Ireland

Ireland's financial crisis was similar to that in the US. Bankers and land developers took big risks to earn big profits while government looked the other way. The government response to the crisis has been to punish those who had nothing to do with the crisis. The government decided to guarantee the debt of the Irish banks to foreign investors who provided the funds for the real estate bubble. The result has been huge budget deficits, due to the guarantees to foreign investors, and to the loss of tax revenues from high unemployment. This led to huge cuts in public spending, which along with the decline in private spending, has depressed the Irish economy even further. Since Ireland is part of the Euro zone, it does not have the option of using monetary policy to deal with its fiscal problems. The population will suffer for a long time for the sins of the bankers and the Irish government.

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