Paul Jay: So, in your view, how do we get from this miracle economy of Ireland with so low unemployment, and apparently a booming middle class, to bust?

Leo Panitch: Well, we got to it via the bust of the financial sector that Ireland certainly didn't cause. It was very much a American-made crisis. But insofar as a good part of the Irish boom involved Irish Banks borrowing short in order to lend long to their property boom, and to some extent to lend to foreign investors who were creating jobs, a lot of them American companies but borrowing from Irish Banks, the result of that when the financial boom ended in the United States was that the knock-on effect meant that Irish banks were virtually bankrupt. And one of the first places on the face of the earth that that was felt apart from Iceland was Ireland, and the Irish government immediately guaranteed all bank deposits. And insofar as they did so, they socialized, took onto the public shoulders the private debt of the banks. And you see the consequences.

JAY: So people are saying what happened is the banks bet, helped create a real estate bubble in Ireland. They bet on it, they lost the bets, and now the Irish people are being asked to bail them out. Is that a fair characterization?

PANITCH: Yeah. And, you know, Ireland didn't have a large public sector deficit, but it now does by virtue of having taken on the burden of the private sector banking deficit. And the result of that is what you see with the Irish debt, the Irish fiscal debt, not being willing – the banking sectors, especially in Europe, who provided most of this lending, not being willing to, as I said before, roll over that debt, not being willing to, in other words, lend any more when Irish bonds come due.

JAY: Paul Krugman wrote a piece recently where he compares what happened in Ireland to Iceland, where he said Iceland took a different approach toward a somewhat similar situation. What do you make of that?

PANITCH: Yeah. They tried to make the Dutch and the British bear some of the burden and came under a lot of pressure from the Dutch and the British for this and had to compromise somewhat, but they did spread it around a little. But you shouldn't think that the Icelandic people haven't had to carry most of that burden they have. Now, I must say, this is now a larger situation. And when the Germans, who always do this, since they never want to take responsibility for this themselves, it always falls more on the American state to organize the bailout. The Germans said that in the future, beginning in 2013, the banks ought to be taking some of the haircut themselves, rather than have the EU states lend – or the IMF or the Americans – lend the Irish state the money, provided they engage in this terrible austerity program. And as soon as the German banks heard that, and not only the German banks, they all the more wouldn't lend money to Ireland, because they didn't want to be caught holding Irish debt if they were going to be the ones who would have to take any of the haircut for this.