Euroangst

As the article in yesterday’s Irish Times by Professor Morgan Kelly of University College Dublin demonstrates, there is now growing scepticism as to whether the EU/IMF ‘bailout’ of Ireland is sustainable, and whether the debt levels taken on by the Irish taxpayer can possibly ever be discharged. Just as we are facing up to this, we learn that the Greek bailout has run into trouble, and that talks are under way on the possible restructuring of Greece’s debts. In this setting it may or may not be the case  – depending on whether you believe the claims and/or the denials – that Greece is contemplating leaving the Euro. A further ingredient in this unstable cocktail is the impact of all of this on the Euro’s exchange rate, which right now is at wholly unrealistic levels.

If public confidence in Ireland and elsewhere in the European response to the debt crises is to be maintained or restored, the terms of the bailouts need to be re-assessed. This is all the more important because the curtain on the really big shows has not yet been raised; I am not just referring to Spain, but also to Italy, where there are major (and so far largely undiscussed) financial issues. The suggestion that the Greeks, the Irish and the Portuguese are being sacrificed in order to save the larger Mediterranean countries could yet produce explosive results.

For the moment all the talk is about banks, debts, currency and budgets. Bubbling under, but not yet explicit, there could be a much trickier discussion about the nature, purpose and ethos of the European Union. The financial issues need to be addressed and the impact on the countries affected so far needs to be re-assessed in order to avoid much more fundamental problems for the whole European project. That project must be shown to be about something more than just protecting the balance sheets of German banks. There is much at stake.

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6 Comments on “Euroangst”

  1. Vincent Says:

    True enough, there is much at stake. But I don’t see why beggaring Otto Klinedorf is going to help any. And that the governments took the Euro to mean that the German piggy-bank was theirs to be raided at will needed to be knocked back quick-smart. This was the assumption that the UK made in the late 80’s with the ERM and properly was told to manage their own moneys ta-ever-so. Or something more trenchant in German about monkeys and nuts with a verb.

  2. Al Says:

    Well said.
    But if the European project is failing we have a duty to both aim to make it a success, and, protect ourselves if it fails.

  3. anna notaro Says:

    On the Greek bailout getting into trouble, the line from Hamlet ‘something is rotten in the state of Denmark’ comes to mind, only it would be best to replace Denmark with Germany to try and explain what’s happening. I’m no economist but something is seriously wrong if rumors of Greece possible partial default on its debt are spread by, or at least seem to originate in, the creditor country (Germany), how can that be right? Surely, not good news for German banks, other rumors circulated also last week regarding the possibility for Greece to leave the eurozone, an event which would have serious consequences on the whole of the EU…so why, I wonder, such radical scenarios have come about? Who is going to benefit? Once again the answer is to be found in Germany, and in particular in the poltical interests of the current establishement. A Greek’s default might not be such bad news now rather than later, i.e. closer to the 2013 German elections when it would be political suicide for the current government to beg the electorate for money to help restore the balance sheets of the German banks. This is no Euroangst, rather Euroegoism!
    Quick note on the Italian economic situation, how it will evolve is connected, among other things, to political considerations, not least the probable nomination of the Italian economist Draghi as the new head of the European Bank, a nomination not exactly favoured by Germany (an Italian in charge of European finances!)but which has received some impetus recently from France (part of the negotiations between Italy and France regarding the African migrants). This is better than a shakespearean plot!

  4. jfryar Says:

    Well, like Anna I’m no economist. But that won’t stop me from throwing in my drachma’s worth …

    It was Germany and France who were the main proponants of monetary union. And as they pushed for that, the EU also allowed lots of small countries to join. The result was large countries forking out huge amounts of cash in ‘development funds’. What ended up happening was, in attempts to grow economies quickly, nations laid a few economic eggs and put them into a small number of baskets. This was all fine by the EU during the good times.

    Then the recession hit. It wasn’t caused by me, or the public, but by banks. Those banks operated in an EU framework that allowed them to buy and sell debt as a commodity. Where were the regulations, where was the European Central Bank? No no, during the good times noone cared. Countries like Germany and France have large manufacturing bases and large domestic markets. And so they weathered the storm, whereas smaller countries like Ireland and Portugal too the brunt as a result of too-rapid economic growth, too few eggs in the basket, and lack of regulation.

    As far as I’m concerned Germany and France can hardly complain about bailouts for countries like Ireland, Portugal and Greece. That was the inevitable consequence of a mismanaged EMU and trying to grow economies too quickly. So on the one hand these countries pushed for EMU, but faced with the consequences of that, they turn around and get all preachy.

    Now Germany and France have long wanted greater integration in Europe. Harmonizing tax was something they wanted for years, and was routinely kicked out of the treaties. Now, with the bailouts, they’re attempting to introduce that harmonization through the backdoor, by making conditions on the loans – lowering coporation tax is a prime example.

    The situation now has become more about political swagger and domestic elections than helping the EU. The bailouts and the conditions of their repayment are part of a game to push for greater integration (look those little countries don’t know what they’re doing so us, as paymasters will set conditions to give us greater influence).

  5. Conor Says:

    The European project “must be shown to be about something more than just protecting the balance sheets of German banks. There is much at stake.”

    Cast your mind back to the early 90s when all currencies were attacked by Soros and his ilk. Irreland was forced to devalue its pound to get help from Germany. Denmark was rescued withour a devaluation.

    Plus ca change…

  6. Conor Says:

    The European project “must be shown to be about something more than just protecting the balance sheets of German banks. There is much at stake.”

    Cast your mind back to the early 90s when all currencies were attacked by Soros and his ilk. Irreland was forced to devalue its pound to get help from Germany. Denmark was rescued without a devaluation.

    Plus ca change…


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