Yesterday, the Commons passed the Loans to Ireland Bill using an emergency procedure which saw all stages taken in the House in an afternoon. I supported the allocation of time, on the basis that if it needs doing at all, it is an emergency. I abstained on second reading – for I didn't have the heart to rebel – and then supported Douglas Carswell's amendment to decide the rate of interest democratically.
Now of course I support setting interest rates using the ultimate economic democracy which is the unhampered market, but since that wasn't on the table, Douglas's amendment would have been a step forward. It was defeated.
I would have spoken in the committee stage, had the timing been different. I would have expressed four concerns:
- I'm not convinced of the moral case for forcing my constituents to shoulder Irish credit risk, particularly in the present UK economic and fiscal situation. The present structure of the Irish economy is built on credit expansion, and that structure must now change. Those changes will affect British businesses, bailout or not.
- While the Chancellor was crystal clear that the clauses allowing an extension of the amount are there to cover exchange risk only before finally agreeing the loan, these things tend to move on in response to events.
- This represents a precedent for the British people bearing other European nations' credit risks in like manner. That is not a happy prospect.
- I'm not certain we will be helping Ireland in the medium to long term. Given the cause of their crisis – excess credit expansion – it seems unlikely that further credit will solve the underlying problems. Furthermore, the necessary restructuring is likely to be supervised and directed badly by Irish, EU and IMF authorities. If planned economies worked, they would not have collapsed historically.
On that last point, David Howden has written at The Cobden Centre in his article, Contagious Defaults:
The disease afflicting Europe today has been brought on by years of money mismanagement. An inflationary policy directed by the ECB in Frankfurt spread throughout the countries using the euro. As the ECB pursued a loose monetary policy, high inflation countries – the PIIGS of today – saw real interest rates drop to the lowest levels in a generation. It is no surprise that the housing boom was most pronounced in exactly those countries with the highest inflation rates during the boom years – Spain and Ireland.
As Mises and Hayek showed, a boom produced by credit expansion must one day come to an end and come to an end it has, right across the Eurozone's periphery and in the UK. The solution is not an expansion of economic governance by institutions which are institutionally incapable of doing the job: it is a return to good money and balanced budgets, lighter regulation and lower taxes.
As David Howden concluded at The Cobden Centre:
El-Erian, among other commentators, would do well to research the recession’s causes before claiming an EU bailout is necessary to stave off contagion. The current bout of “contagion” is nothing of the sort. A centralized monetary policy bred an unsustainable situation. After persisting for several years it is only now being corrected. Policy makers are well-advised to focus on the government-controlled and fractional reserve monetary system that caused the bust, instead of trying to absolve themselves of responsibility through a misused word.
We await proper monetary reform but, in the meantime, you may also enjoy Cobden Centre Radio: The Irish Situation from an Austrian Perspective.