A Few Most Interesting Surprises from Ireland (John Mauldin)

An Irish Haircut

New York, South Africa, Back to Ireland … and Pushups

By John Mauldin | Oct. 7, 2011

Just as only four short years ago it was All Subprime, All the Time, and then it was the Credit Crisis, now it is Europe. (When) will Greece default and which banks will implode as a result? Is there another banking crisis in our future? I just came back from a whirlwind four country visit to Europe, and I will try to offer a few insights. This week we start with Ireland, move to the problem of Europe at large and, if we’re not out of space (and your patience!), we’ll visit some last-minute data points. There is a lot to cover, so let’s jump right in.


A couple of notable excerpts
Ireland is NOT Greece

Ireland is an interesting contrast to Greece. Greece used its access to low rates that came along with the euro to borrow and increase the wages of government workers, until the Greek train system, for instance, had €100 million in revenue and €400 million in salaries, with another €300 million in expenses. A government-sponsored retirement plan for some 600 different “hazardous” jobs (like hairdressing and radio work) was available at 50 years of age.

 Debt Overhang is Monstrous

And the Irish willingly took on the debt of banks that went bankrupt. If Anglo Irish Bank were a US institution, the equivalent debt would have been about $3.5-4 trillion (depending on the exchange rate). Can you imagine trying to get a bailout for ONE bank for that much? And in Ireland there were three of them (!), though the other two were somewhat smaller.

The Path Forward is understood

As a result, Ireland is in the enviable position of having a positive trade balance, which is necessary if you want to balance your budget in a country where the banking system is imploding and people are deleveraging. It is why Greece will become a basket case and Ireland has a way to get through its crisis.

The Irish Haircut

So rather than having to kick the door open for a haircut, they expect the door to be opened for them by the IMF and the ECB. A far more respectable path for those who are very pro-Eurozone. 

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