Douglas Carswell's Blog

Default and decouple are due

"Ireland" writes the brilliant economist Andrew Lilico "has today announced that it has applied to the IMF to be allowed to impose losses on senior bond holders in Anglo Irish Bank."

Good. Let the process of default and decouple begin.

In a world of bad choices, default / decouple is now the least worst thing to do (see Argentina a decade ago). For those squeamish about bond holders not getting their "fixed income" investment back, ask yourself how many shareholders have had to take losses on wrong-headed investments.

Everything that has been done to deal with the Eurozone debt crisis since the May 2010 Ecofin summits has only served to turn a banking crisis into a sovereign default crisis. Having European leaders regurgitate each others' cliches and communiques at endless Euro meetings has not fixed the problem one iota.

A generation ago, at the time of the ERM debacle, the political elite across Western Europe persisted with ruinous policies in pursuit of their own grandiose schemes. Reality eventually imposed itself upon those who tried to defy economic gravity. It looks like the same thing is about to happen on a gargantuan scale.

In the past, when the IMF has intervened to rescue debt-stricken countries, it has normally insisted on a debt restructuring and currency devaluation. The IMF must now apply the same logic in the Eurozone.

Default and decouple or decouple and default? That is the question.

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