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They could balance their budget by raising taxes: corporate, income and perhaps on real estate, to prevent a new bubble.
In the first place, that is not what is being pushed for under the banner of AusterityTM. If you believe that forcing Ireland to honour its debts will result in rollbacks of their neoliberal policies, then you are living in a fantasy world. Pressuring Ireland to honour their debts will provide an excuse for neoliberals - in Berlin, in Bruxelles and in Dublin - to push for wage suppression, dismantling of the pension system, destruction of unemployment protection and collective bargaining and all the other bullshit "reforms" that always get pushed whenever there is a "debt crisis" and "budgets need to be balanced."
Arguing that Ireland should pay its debts by raising taxes on the rich is, in terms of realpolitik, as delusional as asking that the Irish turn down Lisbon in order to permit a grassroots drafting process for the next treaty. It's not gonna happen, and by pushing for it you are aiding and abetting the neoliberals, for whom insisting on debt repayment is a precondition for engaging in "structural adjustment programmes."
In the second place, no Ireland cannot balance their budget by taxing the rich, because Ireland is in the middle of a serious industrial depression, in case you didn't notice. Which means that they can't balance their budget, full stop. They can't balance their budget by taxing the rich. They can't balance their budget by taxing the poor. They can't balance their budget by cutting benefits. They can't balance their budget by taxing corporations. Because they can't balance their budget. Demanding that they balance their budget is buying into the neoliberal idea that governments need to run balanced budgets. They don't. In fact, they shouldn't. Not in recessions, and not cycle-averaged.
- Jake Friends come and go. Enemies accumulate.
I don't assume Ireland will always be depressed. Budgets can and should be balanced over the cycle. Your novel theory: never balance the budget and default regularly can not work.
Obviously, you can raise taxes on the rich, even during a depression. It's actually not a bad time to do it, provided that you have a big enough soapbox to shock doctrine it through. But it won't balance your budget. It will only enable you to make sure that the deficit goes towards building useful infrastructure rather than lining the pockets of your oligarchs. For the purpose of real economic planning, that's a great thing. For the purpose of paying German bondholders, whose bonds mature in less than three years, it doesn't really matter one way or the other.
And this is all Macro 202 (actually, if you look closely at the accounting identities, it's Macro 101 - but most textbooks not to emphasise it). Even the Chica(r)go cultists get this, although they like to pretend otherwise.
Or you can cut the level of expenditures to 33-37%. But I don't think you can run a real welfare state on this.
Now regarding the middle of a depression: I don't assume that Ireland will in three or five or ten years still in the middle of a depression. And then taxes can be rised. And debts be serviced.
As for paying back - why? States are long lived. If Ireland wants to keep the debt another fifty years, why not. Economic growth will then make the debt more bearable.
But in the next few years, if not in the next few months Ireland can arrange its public budget in a way that the interest can be paid. More I do not assert.
I don't assume that Ireland will in three or five or ten years still in the middle of a depression
I wouldn't be surprised if it was, given that we're meant to be running massive austerity budgets for all of that period.
GNP is going to shrink again this year and probably next year - any recovery will be drowned at birth by further austerity.
Sure, tax rates here are too low, sort of. Effective tax rates may be quite high for the poor because of how VAT and charges for government services are structured. I've been calling for increases in Irish taxes for years.
But in the next few years, if not in the next few months Ireland can arrange its public budget in a way that the interest can be paid.
No. It can't.
Why is this so hard to grasp? It's Keynes For Kindergardeners: You cannot run a budget surplus during a serious depression. Not enough surplus to pay interest, not enough surplus to amortise, no surplus at all. Full stop.
So Ireland's bonds will have to be carried for the next five to ten years (more like fifteen if Germany insists on practising Austerity) without the bondholders seeing a single eurocent. Now, that would not in and of itself be a problem, if the ECB were doing its fucking job and printing money on demand. But the ECB is labouring under the delusion that governments should be paying seigniorage to the international money markets.
If the ECB had been doing its job and printing unlimited amounts of money for Ireland, then your proposal would have been something worth talking about. It would still have been odious, because there is no good reason the Irish taxpayer should bail out the Irish banks, so the part of the debt that corresponds to the bailout should be defaulted upon, at the very least. But it would have been within the realm of the possible.
With the ECB practising Austrian economics, however, your plan of "carry now, pay later" is delusional. It can't happen until Weber, Trichet and Stark are fired and replaced with people who understand the real opportunities and constraints that a fiat currency represents. So unless you have a proposal for how to get Messrs. Trichet, Weber and Stark fired and replaced with Keynesian economists that does not involve defaulting on everything with a business address in Frankfurt, I don't see how your plan is anything but a pipe dream.
But on the ECB: There are 16 member states of the ECB. If they wanted, they could send 16 Keynesian economist to Frankfurt. They don't do this. Instead they blame the ECB, a beast of their own creation.
Of course your plan is even more of pipe dream.
Oh, I don't expect the extortion to actually change ECB policy.
But when they default, that will cease to be Ireland's problem, and the Germans who get burned can take it up with Messrs. Stark and Weber, who bear the lion's share of the blame for the ECB's stupidity.
Oh, but that is the whole point of this strategy: Pressure the -zone countries into sending loose-money governors to the ECB.
That said, it really is undignified seeing you try to fob the blame off on someone else - anybody else - other than the last twenty years of German policymakers. The inflation mandate was a German idea - in fact, a German condition for joining the in the first place. So was the General Stupidity Pact, by the way. And there is no doubt that German policy positions wield a disproportionate influence in the ECB. For that, you only have to look at its actual interest rate policy over the ten years of its existence as a functioning central bank: They have consistently favoured German macroeconomic policy at the expense of the interests of peripheral countries.
When you follow the money, you end up in Frankfurt.
But it doesn't change the fact that the ECB has been consistently favouring the surplus countries - of which Germany is the most prominent and powerful - and has for far too long been pandering to German inflation neuroses.
Incidentally, you should be happy about this outcome. Weber was the most significant obstacle to Ireland's debt being repaid in full, due to his insane insistence that the ECB shouldn't carry it at below market rates until the crisis was over.
But the ECB is labouring under the delusion that governments should be paying seigniorage to the international money markets.
It would be very interesting for Trichet to be asked by, say an MEP, why he has not considered issuing money without siegniorage to help the recovery of banks and central banks that threaten the stability of the entire system. The answer, if truthfully given, would be that so doing would undo too much of the narrative that underlies existing policy and would harm the beneficiaries of the neoliberal policies -- the very wealthy. "It is not necessary to have hope in order to persevere."
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