The euro crisis and the job guarantee: A proposal for Ireland

• Main Author: Wray, L. Randall
• Format: Report
• Language: English
• Published: Annandale-on-Hudson, NY: Levy Economics Institute of Bard College 2012
• Subjects: ddc:330; E12; E32; E34; E62; E65; G01; G15; H62; H63; Euro crisis; financial crisis in Ireland; employer of last resort; job guarantee; bank bailout; Irish debt crisis; government debt crisis; Minsky; Argentina; Lent; Iceland
• Online Access: http://hdl.handle.net/10419/57017

Euroland is in a crisis that is slowly but surely spreading from one periphery country to another; it will eventually reach the center. The blame is mostly heaped upon supposedly profligate consumption by Mediterraneans. But that surely cannot apply to Ireland and Iceland. In both cases, these nations adopted the neoliberal attitude toward banks that was pushed by policymakers in Europe and America, with disastrous results. The banks blew up in a speculative fever and then expected their governments to absorb all the losses. The situation was similar in the United States, but in our case the debts were in dollars and our sovereign currency issuer simply spent, lent, and guaranteed 29 trillion dollars’ worth of bad bank decisions. Even in our case it was a huge mistake - but it was 'affordable'. Ireland and Iceland were not so lucky, as their bank debts were in 'foreign' currencies. By this I mean that even though Irish bank debt was in euros, the Government of Ireland had given up ist own currency in favor of what is essentially a foreign currency - the euro, which is issued by the European Central Bank (ECB). Every euro issued in Ireland is ultimately convertible, one to one, to an ECB euro. There is neither the possibility of depreciating the Irish euro nor the possibility of creating ECB euros as necessary to meet demands for clearing. Ireland is in a situation similar to that of Argentina a decade ago, when it adopted a currency board based on the US dollar. And yet the authorities demand more austerity, to further reduce growth rates. As both Ireland and Greece have found out, austerity does not mean reduced budget deficits, because tax revenues fall faster than spending can be cut. Indeed, as I write this, Athens has exploded in riots. Is there an alternative path? In this piece I argue that there is. First, I quickly summarize the financial foibles of Iceland and Ireland. I will then - also quickly - summarize the case for debt relief or default. Then I will present a program of direct job creation that ...