This Is The Way The Euro Ends

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November 18, 2010, 8:40 am

Not with a whimper but with a bank run.

OK, I’m overstating the case — we’re some ways from a euro exit for Greece, let alone Ireland. But we are drifting closer to the kind of scenario I wrote about back in April.
I used to be a full believer in the Eichengreen theory of euro irreversibility, which said that no nation could even discuss leaving the euro, because it would lead to the mother of all bank runs. But as I wrote in April,

But now I’m reconsidering, for a simple reason: the Eichengreen argument is a reason not to plan on leaving the euro — but what if the bank runs and financial crisis happen anyway? In that case the marginal cost of leaving falls dramatically, and in fact the decision may effectively be taken out of policymakers’ hands.

So what the FT is reporting is that there’s a sort of slow-motion run on Irish banks in progress, with corporate depositors gradually reducing their accounts. Not crisis-level yet. But the ghost of a possible ejection from the euro is starting to become visible.
Update: One commenter suggests that Ireland isn’t facing a bank run, it’s facing a bank walk. I like it! At this point, actually, it’s not even that, more of a bank stroll or a bank saunter. We’ll see if the pace picks up.

The Rescue of Ireland

— By Kevin Drum

| Thu Nov. 18, 2010 8:20 AM PST

Here is your unsurprising news of the day:

Irish officials acknowledged for the first time Thursday that the country was seeking aid from international lenders to end the debt crisis that has hurt confidence in its long-term finances and renewed doubts about the stability of the euro....“We’re talking about a very substantial loan for sure,” Patrick Honohan, governor of the Central Bank of Ireland, said earlier in a radio interview on the Irish state broadcaster RTE, and such a rescue would be “in the tens of billions” of euros.

Gee, who could have guessed that Ireland was going to take a bailout even though they kept saying everything was fine? My only real question at this point is whether anyone actually believes this loan is ever going to be paid back. I'm pretty skeptical. Then again, a few weeks ago I read that the final debt payment from World War I had finally been paid off, so I suppose maybe this stuff should be thought of on a century-long timescale. Perhaps by 2110 we'll all be pure energy creatures and won't care about money anymore. That should solve Ireland's problem nicely.