Should Ireland pay the debts run up by gambling bankers and speculators?

An article by financial journalist Michael Lewis in next month’s Vanity Fair argues that Ireland will have no choice but to default on the private debt (i.e. not sovereign debt). Lewis is well known for writing on Greece and Iceland and their financial crises. He argues strongly against the claim that Ireland has no choice but to repay the debts run up by gambling bankers and speculators. 

You can read the full article here.

According to Vanity Fair “Lewis interviewed (Minister for Finance, Brian) Lenihan in an attempt to uncover the man’s reasoning for his actions. Lenihan asserted that he had no choice in the matter. “Under English law,” he explained to Lewis, “bondholders enjoy the same status as ordinary depositors.”

As Lewis points out, this is legalistic - “narrowly true, but generally false. The Irish government always had the power to impose losses on even the senior bondholders, if it wanted to.” When he made the decision in 2008, Minister Lenihan said it was done to prevent contagion. But Lewis points out, this wasn’t true either. A year and a half later, the Minister offered a different explanation, claiming that the bonds were owned by Irish people and institutions. “The Irish, in other words,” Lewis writes, “were simply saving the Irish. This wasn’t true.” The bondholders were mostly foreigners.