The Pin Factory Blog

Nicolas Sarkozy welcomed in the New Year with his annual address to nation. In addition to the sensible confirmation that he would stay committed to improving France’s finances, he added that he would also fight to keep the euro.

Giving up the euro would constitute “madness”, according to the French President, and he urged his fellow countrymen to not lose faith in the troubled currency:

“Do not believe, my dear compatriots, those who suggest that we leave the euro. The isolation of France would be madness. The end of the euro would be the end of Europe…. [I] oppose with all my strength this backward step which would make a mockery of 60 years of European construction which has brought peace and fraternity to our continent.”

Mr. Sarkozy should read his history books. Europe had a great history prior to integration; even France had its bright moments. The Enlightenment, the Renaissance, the birth of Western civilization – all seemed to occur prior to this euro-centric push for integration.

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Ireland has secured €85bn in emergency funding for the time being. This loan will enable it to keep playing a dangerous game for a while longer. While the bailout may appear to be a positive development to some, the strings that its creditors will no doubt increasingly attach to it will hamper Ireland’s independence moving forward.

The more pressing question that we may ask is whether accepting the money was the best action to deliver Ireland to a prosperous future. If Ireland’s ailment was indeed a lack of liquidity, a short-term loan may indeed be just what the doctor ordered. Unfortunately, today’s crisis is anything but one of liquidity. What plagues Ireland, and the rest of Europe’s periphery, is not a lack of liquidity but a more damaging lack of solvency. Short-term loans will provide little relief from this long-term problem.

What is needed instead of an analysis of the current problems is adeeper reflection of the true nature of the problem at hand. Philipp Bagus’ new book “The Tragedy of the Euro” provides just what the doctor ordered.

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While Ireland’s economic collapse continues unabated, more and more implausible and counterproductive solutions become reality. Over the course of two years, several bailout packages have increased public sector external debt (that owed to creditors outside the country) to 1,305 percent of GDP.

The latest bailout will put every Irish man, woman and child on the hook for an additional €20,000, regardless of whether they lent a “helping” hand to produce such an imbalanced state of affairs. While the morality of indebting innocent citizens to save culpable bankers is questionable, it may be time to reassess if there was a better roadmap to recovery that the Irish could have followed.

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