Ireland's financial woes are so bad that we are effectively insolvent, says a former chief economist of the International Monetary Fund.
In an article for his Baseline Scenario website, Simon Johnson, a professor of enterpreneurship at the MIT Sloan School of Management, claims: "The ultimate result of Ireland's bank bailout exercise is obvious. One way or another, the government will have converted the liabilities of private banks into debts of the sovereign (that is, Irish taxpayers), yet the nation probably cannot afford these debts.
"In total, the debts of Irish banks could easily result in a charge to government debt equal to one third of GNP," says Johnson, who wrote the piece in conjunction with fellow economist Peter Boone, an associate at the London School of Economics and a principle in hedge fund Slute Capital Management. While there had been growth in GDP, Boone and Johnson said that GNP – a measure which excludes the expatriated profits of multi-nationals – had contracted, as had tax revenues and employment.
"Ireland, simply put, appears insolvent under plausible scenarios with current policies. The idea that Ireland, Greece or Portugal can cut spending and grow out of overvalued exchange rates with still large budget deficts,while servicing all their debts and building more debt, is proving – not surprisingly –wrong," they wrote.
If current policies continued, they concluded, "the calamity of the Irish banking system will lead to a much deeper recession and the consequences will be felt for decades".
Department of Finance sources rejected some assertions in the article, notably a claim that each Irish family of four would be liable for €200,000 in public debt – suggesting a national debt of €200bn – by 2015.
They also said the option of default had been taken only by countries which did not have to rely on raising funds from the international markets to cover the kind of state expenditure – such as welfare payments – taken for granted in developed economies.
Absolutely hilarious that someone from the dept of finance believes they know better than a chief economist for the IMF! I dont even know where to start!!