Comments on Daniel Gros “How to make Ireland solvent”, 19/05/2011, http://www.businessspectator.com.au/bs.nsf/Article/Ireland-foreign-debt-bail-out-Irish-pension-funds--pd20110518-GY97D?OpenDocument&src=rot
Daniel Gros appears to have been confused by different ownerships and their implications.
A/the government of a country is different from its individual constituency. Their interests may be the same on some matters, but can differ in a whole range of other matters.
In another word, their interests may converge on some and diverge on some others. Further, the interests of different constituent members are different.
This is no different to taxation.
A country (or rather its government) may bankrupt, but some of its constituency members may not be affected by that, or may even benefit from that.
Even in the context of Daniel Gros concerns, those funds may actually do better if they avoid poor Irish government bonds altogether, given the risks associated with them.
It is the risk weighted returns that matter, not what Daniel Gros simply argued.
Daniel Gros may have assumed away those risks, but those funds are unlikely to do the same.
Daniel Gros may argue that the GFC cannot happen because there are always credits for any debts owed, so if all parties come together, there will not be any credit crunch and shortages.
Is that line of argument credible in the real world? Even Daniel Gros must admit it is not.