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Over and over we hear that Ireland’s current crisis all began with the blanket bank guarantee given by the then Irish government in September 2008. Wrong.

There are those who would argue that it has its roots in capitalism, others who would argue it has its roots in the time when currencies abandoned the gold standard etc. etc, but all those arguments are for another time. Let’s focus on what has happened in Europe over the last few years.

This crisis had its roots in Maastricht 1993 when the Euro was conceived. That new currency was launched electronically on January 23^rd 1999 and in January 2002 we began using notes and coins.

From the time of its conception through the years of its inception and right up to the present day, it has been an incomplete currency, a monster currency. No-one ever had total control over it, no-one has. The ECB’s very narrow remit was to control inflation and as this Frankenstein began its tour of wreck across the economies of the countries on Europe’s edge, the ECB was blind, oblivious – inflation, you see, was low.

Prior to the euro-launch, banks and governments from countries like Ireland, Portugal, Spain, Italy and Greece paid a premium to borrow on the international money markets, their currencies – the punt, escudo, peso, lira and drachma – seen as vulnerable. Membership of the Eurozone changed all that.

In the early years of the 2000s, the major investment banks and financial institutions of what have come to be known as Europe’s core countries – Germany, France, the Netherlands – had tens of billions, hundreds of billions, to invest. In the banks and governments of many of what have now come to be known as the peripheral countries, they found willing borrowers. And so the flood of money into those countries started.

1) It used to be a fundamental principle of banking that you treated the money you were lending as though it was your own – anyone in Ireland who took out a loan or a mortgage from any of Irish bank during the 80s and 90s, when you almost had sign in blood, knows what I mean. During the last decade, some of the biggest banks and some of the biggest financial institutions in Europe – indeed right across the world – lost sight of that basic principle. They engaged in reckless lending.

For every reckless lender of course there’s a reckless borrower. In Ireland it wasn’t the government doing the borrowing, it was the banks. This is a crucial point, absolutely crucial.

In fact not alone was our government not borrowing, it was actually paying down the national debt and at the start of 2008 it stood at just over €40bn, while we had around €20bn in savings, in the National Pension Reserve Fund.

2) Fundamentals of an over-heating economy, ignored: In the early years of this feeding frenzy everyone in the banking sector, here and abroad, was profiting and, blinded by those profits, blinded by their own greed, the banking standards began to slip.

A bubble was building, a massive bubble, but despite all the warning signs the reckless lending and the reckless borrowing continued. And of course, the bubble burst. When it did, when the dust had settled, it transpired that the Irish banks – private institutions – owed tens of billions to the private lender institutions of Europe and likewise to private financial institutions in the rest of the world, billions they didn’t have; the hurricane that had been building off-shore for several years, a category 1 hurricane, was about to touch land in Europe, and we were right in the eye.

So no, the blanket bank guarantee of September 2008 wasn’t the root cause of our present problem, it was merely the first attempt by the first country in the line of fire to deal with that problem. It was flawed, fatally flawed; it failed, but then everything that Europe itself tried in the early years also failed, and failed miserably.

Read More: thechatteringmagpie

2013-03-10 01:18:13

Source: http://www.oneworldchronicle.com/?p=11932