Why the Rescue Plan for Ireland will Fail.

The Drama of Ireland is that she has constructed a modern Economy with a Financial System that is Dysfunctional, and it is dysfunctional because the Eurosystem (not the Euro) is also dysfunctional. When the German Economy was going well, the European Central Bank (ECB) did not care about the monetary explosion in the Periphery in general and in Ireland in particular; now that Germany goes well and they do not feel the monetary pressure, the ECB only cares about the periphery under Banking Crisis with Systemic risks, meanwhile the damage to Ireland is there. The Monetary trends are shown below.

How come that an economy with a structural Current Account surplus over 20.000 Million Euros per year since 2,004, or 14% of its GDP, that makes of this Economy a real money machine has destroyed more than 52,000 Million Euros since 2,007 till today in M3? Because, neither the Irish Government nor the European Central Bank, via de Irish Central Bank, are able to re-structure the Irish Banking Sector, to restore confidence and expand credit again; as a result, both, but specially the ECB and the talking heads of the European Union, in conjunction, are creating an unprecedented contraction of the Money

Supply in Ireland. They are the real responsible people of ruining Ireland and the creation of this second round in the Global Financial Crisis. This Plan will fail because Ireland has a Deflation “bill” pending. Between
July 2,007 and July 2,008 Irish M3 falls 10.3% and that started a deflation of 4.2% for the period; If now, that her M3 has fallen since October 2.009 a 17.5%, CPI could fall 7% (see chart below) and we can expect that Irish Public Deficit will grow accordingly. Additionally, if Europe makes them increase their Corporate Tax and it could generate an outsource of exports that will kill the Irish M3 money machine. Under these circumstances the country will fall in to a spiral of structural fiscal insufficiency becoming Greece 2.0. Are the Eurocrats doing it by purpose?

Let’s hope sound judgment reigns over this Crisis. Luis Riestra Delgado. 11/25/2,010.