Crashed: How a Decade of Financial Crises Changed the World

by Adam Tooze

Setting aside the gross inequity of the troika’s demands, was it even plausible that Ireland posed risks of contagion comparable to Lehman? As Martin Sandbu of the Financial Times put it with rare force: “Lehman was a global bank.” Its business “was at the heart of the world’s financial plumbing.” Not rescuing it proved to be a disaster. The Irish banks, by contrast, were “a small racket in Europe’s financial periphery, busily and exuberantly losing . . . investors’ money in the time-honoured way of lending more for houses than they were worth.” Nothing “systemic” depended on their creditors being repaid in full.69 Of course there was some risk of spillovers. But if French and German banks suffered collateral damage, that was because they had participated so enthusiastically and profitably in the Irish boom. Given that responsibility was so widely spread, was it reasonable to impose the entire cost of containing the fallout on Ireland’s taxpayers alone? As Ajai Chopra of the IMF later remarked: “Yes, there would have been spillovers. But . . . the ECB could have stepped in. . . . That’s what a central bank is for, to deal with these sorts of spillovers.”70 But that was not the kind of central bank the ECB thought itself to be. On November 26 its representatives in Dublin made clear that if haircutting was involved, there would be no bailout. A day later the IMF team in Dublin received direct instructions from Washington to drop any further efforts to enroll the banks. The ...

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