A banking guarantee transformed private debt into sovereign debt overnight

Evidence

Fearing financial Armageddon, the Irish government issued a blanket guarantee for the entire banking system’s liabilities, and that 400 percent of assets as GDP on the private sector’s balance sheet very suddenly became the Irish public’s problem. The combined result of the property-bubble collapse and the banking system implosion was “the largest compound decline in GNP of any industrialized country over the 2007–2010 period.” Government debt increased by 320 percent to over 110 percent of GDP as the government spent some 70 billion euros to shore up the banking system. Meanwhile, unemployment rose to 14 percent by mid-2011, a figure that would have been higher had it not been for emigration. — Mark Blyth, Austerity, 184

Categorization

• XREF: Directly supports Blyth’s broader thesis that private banking losses became public (‘socialized’) debt — the core mechanism Mattei’s austerity critique also engages. — connects to: REBLL states cut sovereign debt while private sectors borrowed hugely for construction — Mark Blyth, Austerity: The History of a Dangerous…, 598; The sovereign debt crisis was actually a banking crisis in disguise. — Mark Blyth, Austerity: The History of a Dangerous…, 33; The sovereign debt crisis is a transmuted and camouflaged banking crisis — Mark Blyth, Austerity: The History of a Dangerous…, 35 (+6 more)
• ADDENDUM: The private-to-public debt transfer is the precise mechanism that later justifies austerity as ‘inevitable’ in the Irish case — useful supporting material for the sacrifice piece.

Broader Connections

• Crisis rescue shifted private sector insolvency onto sovereign state accounts #corroborates (0.80) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 49
• The Chilean state socialized private debt while keeping the neoliberal framework intact #exemplifies (0.72) — Philip Mirowski & Dieter Plehwe (eds.), The Road from Mont Pèlerin, 1595
• Banking crises precede sovereign debt crises in 80 percent of cases #qualifies (0.70) — Mark Blyth, Austerity, 206