Courtesy Reuters

What the EU Should Learn From Ireland's Austerity Fiasco

Letter From Limerick

On November 2, Michael Noonan, Ireland's minister for finance, stood before the Irish parliament to explain why the government decided to pay back one billion dollars -- funds that Ireland didn't have -- to unsecured bondholders. It was not that he wanted to pay off the debts run up by the now defunct Anglo Irish Bank, Noonan argued, but he had no choice. His predecessor had made an agreement with the European Central Bank and he was bound to honor it.

Just a year earlier, a member of parliament in the opposition had warned against just such an "indefensible" and "obscene" move. "What legal or moral compulsion is there on Ireland to honor in full debt incurred by Irish banks," he asked, "when there was no state involvement in the arrangements? These loans were entered into freely by willing lenders and borrowers . . . The interest rate charged represented the risk at the time and there never was a state liability."

That man was also Michael Noonan. Despite his party's coming to power in the subsequent year on a platform of change, reform, and jobs, by late 2011 he was repaying bondholders in defunct banks, shelving reform of Ireland's institutions, and doing next to nothing to check unemployment. That November day in Ireland's parliament was telling. Noonan spread his hands as if to say, What can I do?

What indeed? Ireland is broke. The value of the country's output is at a virtual standstill (around 160 billion euros), and the IMF projects it to stay

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