Ireland To Become Economic Vassal Of Brussels

As I mentioned in yesterday's post, Morgan Kelly, an economics professor in Dublin, Ireland, warned the Irish government about the impending economic meltdown because of laws enacted to protect Irish banks from failure. He was derided as a crank and alarmist. Now that the meltdown has occurred just as he predicted, he's warned the government not to take a bailout from the EU and the IMF because in the long run it will hurt the Irish economy worse than if they did nothing and leave the economy under the control of Brussels. Did the Irish leaders listen?

Of course not.

After months of trying to go it alone, Irish officials have relented and are officially asking Europe for a bailout that could top the $110 billion dished out to stave off bankruptcy for Greece.


The request for help was a humbling turnabout for Ireland, which just last week was insisting it could manage its own finances. It does not view itself as being as profligate or irresponsible as Greece was in running up deficits, and has been preparing a four-year budget plan filled with sharp cutbacks that is intended reduce its deficit from 32 percent of gross domestic product to 3 percent.

But the government has been sinking further and further into debt since its 2008 decision to protect its banks from all losses. The banking system had become so weakened that it could not afford to wait any longer for help.

Ireland is suffering from the Law of Unintended Consequences, where legislation designed to prevent bank failures and help prop up the economy had just the opposite effect. That's what happens when stopgap measures brought forward by those with too little understanding of economics and monetary policy try to fix a problem they don't understand.

Ireland's calamity should be seen as a cautionary tale, showing us how government intervention in markets as a means of protecting the economy quite often creates more problems than it solves.