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Hm, I have been thinking about how to make an easy point. Being easy, it of course ignores a lot of things like the dual nature of trade imbalances, the character of money and the composition of the bad debt. Please point out how wrong this is :)

Ireland has a trade surplus, more money comes in each year then goes out.

If Ireland was a company it would be going well. Unfortunately, one of the partners had a nephew who got a huge gambling debt and in a reckless act the partner wrote over this debt on the company. The company now has a debt that can not be served, and the debtors want the company to gut salaries, fire people and in general run the company in the ground to get some money back fast.

Fortunately, Ireland is no company, it is a state. Ireland can thus default on bad debt with no other repercussions then a bit higher interest on the remaining debt for a while. Russia did it in the 90ies, and that is exactly what happened. As long as more money comes in every month then goes out, a bit higher interest will not cause any problems.

So on the one hand we have the ECB way to gut the real Irish economy to try to pay the gambling debts of the bankers, on the other we have a bit higher interest on the (really low) debts Ireland had before the crisis. The choice should be simple.

Would this work to explain the situation to the average irelander? Is it right enough?

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by A swedish kind of death on Fri Feb 4th, 2011 at 08:15:04 AM EST

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