Thursday, June 28, 2012

Europe on the edge

An Taoiseach Enda Kenny is off this morning to Brussels for a two day summit of European leaders who are meeting for the 20th time in the last two years to try and resolve the debt and banking crisis within the EU.

At the start of the week Spain formally requested European aid of up to €100 billion for its banks making it the fourth state to require an EU bailout.

Within hours of Spain’s request for help Cyprus became the fifth state seeking a bailout for its financial sector. And on Tuesday Italy had to pay more at a bond auction.

The Spanish prime minister, Mariano Rajoy told his Parliament that he will demand in Brussels that existing "instruments" are used to calm financial markets. He warned that Spain ‘cannot finance ourselves for a long time at prices like those we are now paying.’

He was standing up for Spain. That’s his job and his mandate.

He said: "I will propose measures to stabilize financial markets, using the instruments at our disposal right now."

In stark contrast the Taoiseach is quoted in the Irish Times saying that he will not be looking for a deal on the Irish bank debt, ‘It is not Ireland that is in focus this time.’

Regrettably this has been his constant mantra through successive EU Council meetings and he repeated it in the Dáil on Wednesday. The negotiating position of the government has been disastrous. It has failed to stand up for the interests of Irish citizens.

The EU summit has been billed as a growth and jobs summit but it will inevitably be dominated by the worsening crisis in Spain and Italy, the situation in Greece and the weakness of the European banks.

And there is no sense from the Irish government of a strategy going into this summit that will ease the burden on Irish citizens. The Taoiseach promised to remove the weight of the banking debt from taxpayers but this has not happened. He promised jobs, investment and stability and this has not happened.

And after three years of dithering and poorly planned economic and fiscal initiatives the crisis grows worse. Europe's leaders are failing.

Last July, they and the Taoiseach agreed to a restructuring of Greek debt but almost one year later and the situation is as bad as ever. Last autumn, the European Central Bank provided large-scale liquidity to banks to try to ease the situation in Spain and Italy. This has not worked either.

Last December, the Eurozone agreed the fiscal treaty – which the government and Fianna Fáil persuaded citizens to vote for in May - and for more money to end the crisis. That hasn’t worked.

Many have been pinning their hopes on the creation of Eurobonds and an agreement on shared liability within Europe for banking debt. The government is belatedly arguing that shared liability also needs to be retrospective and to apply to Irish banking debt.

And now into the mix is the report drawn up by Herman Van Rompuy, Jean Claude Juncker, José Manuel Barroso and Mario Draghi. It is a charter for a even closer EU integration and a banking, fiscal and political union which would allow the EU to intervene directly in the budgets of member states.

According to EU Commission President Jose Manuel Barroso a fiscal union is ‘about much more than just euro bonds or stability bonds. It also means more co-ordination in taxation policy and a much stronger European approach to budgetary matters at national and European level.’

Remember Enda Kenny’s leaders address on RTE last December? He said: ‘I want to be the Taoiseach who retrieves Ireland’s economic sovereignty and who leads a Government that will help our country succeed.’

His only success thus far has been in signing up to a process that will see a further erosion of sovereignty and the continued impoverishment of citizens.

There is also speculation about Euro bonds. But the German Chancellor Angela Merkel reportedly told a private meeting this week that there would be no Eurobonds ‘in her lifetime’. And in a contribution in the Bundestag on Wednesday she described short-term crisis remedies, like joint liability of Eurozone debt as ‘eyewash and fake solutions.

She added that; ‘Apart from the fact that instruments like eurobonds, eurobill, debt repayment funds and so on are unconstitutional in Germany, I consider them economically wrong and counterproductive.’

So, the Brussels summit has its work cut out for it. It needs to give the people of Europe some hope that their leaders have learned from the mistakes already made and have a coherent plan for the future. There is little evidence of that at this time.

The policies of austerity are driving Europe deeper into recession. That is especially true in this state where the government is taking money from working people and from the most vulnerable and essential public services to pay off the debts of the banks and the elites.

This week another tranche of €1.14 Billion worth of unguaranteed unsecured bonds, formerly held by Irish Nationwide and Anglo Irish Bank, were paid to senior bondholders. One of these, at €598 million, was more than the €500 million the government is committed to taking from the Social Welfare Budget.

So, all in all the EU summit promises to be an interesting meeting. Possibly more for what is not done or agreed, than for what is done and agreed. And in this respect the crisis within the EU is unlikely to be significantly reduced by what emerges.


Timothy Dougherty said...

Hello Gerry,
With Europe's top central bankers not ruling out returning to old national currencies,for sure this is serious the situation. Now is the time to look at the possibility of the Euro € collapse, not an unlikely scenario. Nothing seems impossible anymore, but lets look at two other options (1) Drastically increase taxes or (2) Impose significant financial burdens on citizens, creating higher inflation. There is no consensus, at this time in history. Even the the ECB has exhausted its resources. The European leaders trying to save the € are in a race against the Time that has run out. Being prepared for a Europe with multiple currencies, is a fact, banks will need liquidity. In this type Crash the countries in the euro zone could loose, significantly lower economic output. Government debt would rise sharply as tax revenues declined, jobs loss, outsourcing a crash or they have to reform the euro, they have run out of options.

man with desire said...

Interesting text;