That’s how it feels in the financial markets, too. The question everyone wants an answer to is: Will Greece default? There’s a school of thought that says they have no choice: the very measures the government imposes to cut costs and raise revenues will cause what is left of the productive economy to flee the country. The taxes are lower in Bulgaria, the workers more pliable in Romania. But there’s a second, more interesting, question: Even if it is technically possible for these people to repay their debts, live within their means, and return to good standing inside the European Union, do they have the inner resources to do it? Or have they so lost their ability to feel connected to anything outside their small worlds that they would rather just shed the obligations? On the face of it, defaulting on their debts and walking away would seem a mad act: all Greek banks would instantly go bankrupt, the country would have no ability to pay for the many necessities it imports (oil, for instance), and the government would be punished for many years in the form of much higher interest rates, if and when it was allowed to borrow again. But the place does not behave as a collective; it lacks the monks’ instincts. It behaves as a collection of atomized particles, each of which has grown accustomed to pursuing its own interest at the expense of the common good. There’s no question that the government is resolved to at least try to re-create Greek civic life. The only question is: Can such a thing, once lost, ever be re-created?
III
IRELAND’S ORIGINAL SIN
When I flew to Dublin in early November 2010 the Irish government was busy helping the Irish people come to terms with their loss. It had been two years since a handful of Irish politicians and bankers had decided to guarantee all the debts of the biggest Irish banks, but the people were only now getting their minds around what that meant for them. The numbers were breathtaking. A single bank, Anglo Irish, which, two years before, the Irish government claimed was suffering from a “liquidity problem,” confessed to losses of 34 billion euros. To get a sense of how “34 billion euros” sounds to Irish ears, an American thinking in dollars needs to multiply it by roughly one hundred: $3.4 trillion. And that was for a single bank. As the sum total of loans made by Anglo Irish Bank, most of it to Irish property developers, was only 72 billion euros, the bank had lost nearly half of every dollar it invested.
The two other big Irish banks, Bank of Ireland and, especially, Allied Irish Banks (AIB), remained Ireland’s dirty little secret. Both older than Ireland itself (the Bank of Ireland was founded in 1783; Allied Irish was formed in a merger of three banks founded in the 1800s), both were now also obviously bust. The Irish government owned most of the two ancient banks, but revealed less about them than they had about Anglo Irish. As they had lent vast sums not only to Irish property developers but also to Irish home buyers, their losses were obviously vast—and similar in spirit to the losses at the upstart Anglo Irish. Even in an era when capitalists went out of their way to destroy capitalism, the Irish bankers had set some kind of record for destruction. Theo Phanos, whose London hedge fund has interests in Ireland, says that “Anglo Irish was probably the world’s worst bank. Even worse than the Icelandic banks.”
IRELAND’S FINANCIAL DISASTER shared some things in common with Iceland’s. It was created by the sort of men who ignore their wives’ suggestions that maybe they should stop and ask for directions, for instance. But while the Icelandic male used foreign money to conquer foreign places—trophy companies in Britain, chunks of Scandinavia—the Irish male used foreign money to conquer Ireland. Left alone in a dark room with a pile of money, the Irish decided what they really wanted to do with it was buy Ireland. From each other. An Irish economist named Morgan Kelly, whose estimates of Irish bank losses have been the most prescient, has made a back-of-the-envelope calculation that puts the property-related losses of all Irish banks at roughly 106 billion euros. (Think $10.6 trillion.) At the rate money flows into the Irish treasury, Irish bank losses alone would absorb every penny of Irish taxes for the next four years.
In recognition of the spectacular losses, the entire Irish economy has almost dutifully collapsed. When you fly into Dublin you are traveling, for the first time in fifteen years, against the traffic. The Irish are once again leaving Ireland, along with hordes of migrant workers. In late 2006 the unemployment rate stood at a bit more than 4 percent; now it’s 14 percent, and climbing toward rates not experienced since the mid-1980s. Just a few years ago Ireland was able to borrow money more cheaply than Germany; now, if it can borrow at all, it will be charged interest rates 6 percent higher than Germany, another echo of a distant past. The Irish budget deficit—in 2007 the country had a budget surplus—is now 32 percent of its GDP, the highest by far in the history of the euro zone. Professional credit analyst firms now judge Ireland the third most likely country in the world to default. Not quite as risky for the global investor as Venezuela, perhaps, but riskier than Iraq. Distinctly third world, in any case.
Yet when I arrived, Irish politics had a frozen-in-time quality. In Iceland, the business-friendly conservative party had been quickly tossed out of power, and the women had booted the alpha males out of the banks and government. In Greece the corrupt, business-friendly, every-Greek-for-himself conservative party was also given the heave-ho, and the new government is attempting to create a sense of collective purpose, or at any rate persuade the citizens to quit cheating on their taxes. (The new Greek prime minister is not merely upstanding but barely Greek.) Ireland was the first European country to watch its entire banking system fail, and yet its business-friendly conservative party, Fianna Fáil (pronounced “Feena Foil”), remained in office up until February 2011. There’s no Tea Party movement, no Glenn Beck, no serious protests of any kind. The only obvious change in the country’s politics has been the role played by foreigners. The new bank regulator, an Englishman, came from Bermuda. The Irish government and Irish banks are crawling with American investment bankers and Australian management consultants and faceless Euro-officials, referred to inside the Department of Finance simply as “the Germans.” Walk the streets at night and, through restaurant windows, you see important-looking men in suits, dining alone, studying important-looking papers. In some new and strange way Dublin was now an occupied city: Hanoi, circa 1950. “The problem with Ireland is that you’re not allowed to work with Irish people anymore,” an Irish property developer told me. He was finding it difficult to escape hundreds of millions of euros in debt he would never be able to repay.
Ireland’s regress is especially unsettling because of the questions it raises about Ireland’s former progress: even now no one is quite sure why the Irish did so well for themselves in the first place. Between 1845 and 1852 the country experienced the single greatest loss of population in world history: in a nation of 8 million, 1.5 million people left. Another million Irish people starved to death, or died from the effects of hunger. Inside of a decade the nation went from being among the most densely populated in Europe to one of the least. The founding of the Irish state in 1922 might have offered some economic hope—they now had their own central bank, their own economic policies—but right up until the end of the 1980s the Irish had failed to do what economists expected them to do: catch up with their neighbors’ standard of living. As recently as the 1980s 1 million Irish people, in a nation of a mere 3.2 million, lived below the poverty line.