Britain, outside the Eurozone, should not lend money to Ireland

Britain doesn't have any accountability to this Irish failure 'cos Britain is not a part of the EMU!

Unless either Ireland leaves the EMU or the Eurozone decided to Federalise itself (i.e. replace the national debts with the ECB bond, and replace the unstable fragmented fiscal policies with a stable common treasury) , investing Ireland contains a high risk premium!

Lending money to individuals with a high risk premium requires charging a high interest rate enough to cover the risk premium because the lender should not make a fatal loss on a budget, which causes the lending country to fall in to another recession.

A relatively well-off country shouldn't be penalised save a country with an insoluble trouble! The current policy will knockdown both the relatively well-off countries, such as Germany and Britain, and the countries under the crisis!



It's highly dangerous to lend money to those which have a high risk premium!

I would have agreed with you if Ireland weren't in the Eurozone.
Under her crisis, the common currency system is a fundamental cause, so the Eurozone countries are much more responsible on her crisis than Great Britain.

The reason why Germany could lend money to Ireland was that the stimulus to Ireland, the same organ of the common currency system, also stimulate the value of Euro, so it is beneficial to Germany in a long term. The value of Euro is influenced by the value of all a whole set of Eurozone countries.

However, the stimulus by Britain, who is in outside the Eurozone, won't encourage Irish economy, the tiny part of the Eurozone. If Ireland had kept her own monetary policy, British stimulus to Ireland causes to the appreciation of Irish economy, therefore it would have induced the healthy inflation which reduces the net present value of the money borrowed at the time Ireland borrowed. Therefore, the motivation to invest into capital in Ireland will be encouraged 'cos of the expected inflation.

On the contrary to this function, the current system doesn't enable Ireland to reduce the net present value of the money borrowed unless the entire Eurozone economy is stimulated. Although the British stimulus to Ireland may boost her economy in a very short run, because the velocity of money invested will be very low or even zero, Irish economy won't be stimulated enough to recover from the recession due to the low inflation expectation.

All in all, the responsibility of Irish economy is based on the accountability of the entire Eurozone. British investment to Irish economy will simply be a waste of money unless Britain charges a high interest rate.


... Politicians tend to lose the perspectives from a financial and economic analyst. If we lend money, all the factors have to be put into a calculus! We must not forget about the dynamic impacts of Financial Engineering on an international public sector economy! The simulation taking the inflation expectation, impact of the monetary union, and risk premium into consideration must be run! It's dangerous to rely on the Pro-Europeanist transcendentalism any more! Realistic financial aspects based on the cost and benefit analysis should be taken into the consideration well!