Ireland has been persuaded by the European Union to accept a $114 billion bailout to save the Irish government from defaulting on its government debt. Of course the gift comes with strings attached: an austerity program that includes steep tax increases and major cutbacks in social service programs.
Ireland didn’t have to accept the bailout; it could have gone a different route. It could have defaulted on a portion of its debt, thereby forcing investors to take the loss, instead of imposing hardships on its poor, disabled, and elderly citizens. But just the whiff of a default, just the barest hint that Ireland was considering default as a possible alternative, sent the interest rate on Ireland’s bonds shooting up over 8%, making a bailout necessary immediately.
Therein lies a lesson on the pitfalls of an international financial system. The Bush Sr./Clinton/Bush Jr. administrations all trumpeted the beauty of the World Trade Organization, the “liberalization” of the world economy, the dissolution of trade barriers and the deregulation of the financial industry worldwide. A “global economy” was supposed to make us all richer. In fact, it’s made a few financial industry executives and securities traders astoundingly wealthy, while the rest of us are struggling to get by on less than ever, many of us buried in piles of debt.
Thirty years ago, Ireland’s bonds would have been held by its national banks and its own public, and default might have been a workable possibility. Investors would be forced to take the brunt of the loss (which is the way the system is supposed to work) and they wouldn’t be able to easily move their money to another country at the push of a button. Today, Ireland’s bonds are sold to investors all over the world, from Japan to the U.S. to Brazil, sold to pension funds, to hedge funds, to major international banks—all of whom are quick to dump a security when it looks a little risky. The speed at which these rats desert a sinking ship can precipitate financial disaster within hours or even minutes.
And so, we get emergency bailouts. It’s quick and it’s easy to dump the problem on the taxpayers; but once you go down the road of bailouts, it’s nearly impossible to turn back. The bailout of Ireland comes hot on the heels of Greece’s bailout. Now Portugal is teetering on the brink, next in line for an IMF-style bailout/austerity package. Unfortunately, that won’t be the end: Spain is also suffering under an investor retreat, and Spain’s economy is twice the size of Greece’s, Ireland’s, and Portugal’s put together.
The European Economic Union could eventually collapse under a financial version of the domino effect. Yet investors and big banks are protected at all costs. Without regulations, restrictions, boundaries, and borders, they can always take their money and go elsewhere.
Maybe what we need is a new set of laws to regulate the flow of money in the global economy. Forget about migrant workers: migrant money is what’s hurting us the most.