You've probably heard about "austerity" budgeting in Ireland, but the Irish government has actually been spending tons of money to prop up its banking sector. The austerity's been for everyone else. And that's why Irish Finance Minister Michael Noonan is smiling brightly after a European Union summit agreement he calls "game changing" for his country.
For the eurozone as a whole, I don't really think this is much of a game changer, but it's a huge deal for Ireland.
Here's the basic issue. In the United States you can have a situation where a particular region has a huge property bubble. It happened to Texas in the go-go Dallas days, for example. Then the bubble collapses. A lot of people lose their jobs, a lot of people are stuck with bad debts, and a lot of banks fail. But the costs of the bank failures are covered by the FDIC, which has a nationwide funding base. In Europe that's not how it works. When the Irish property bubble collapsed, people lost jobs and were saddled with debts and the Irish state wound up bearing the price of the banking collapse.
The European Union agreed last night to partially change that and let a continent-wide bailout fund do direct bank bailouts. That'll take a bunch of bank debt off Ireland's books and let them ease off the fiscal austerity. Meanwhile, the European Central Bank is supposed to create some new level of eurozone-wide banking supervision.
None of this is what I would have been focusing on, and it leaves tons of problems remaining, but it's definitely great news for Ireland, which was really getting crushed by these bank debts but otherwise has a mostly good reputation and now may be able to wriggle its way out of austerity town relatively quickly.