22.11.2010
WHO NEXT? (EuroIntelligence)
The EU always used to enjoy a few weeks – lately a few days – of mutual self-congratulation and shoulder-slapping after a bailout. But after last night’s political agreement in principle of an Irish aid package, in the magnitude of €80bn to €90bn, everybody’s first reaction has been: Who is next? Someone who stuck to the old complacent mantra was Wolfgang Schauble, who said on German TV last night: “If we now find the right answer to the Irish problem, then the chances are great that then there will be no contagion effects.”
Here is the full text of the Irish government’s statement last night. It made the point that Ireland will use the money to work for an extensive restructuring, and downsizing, of its banking sector. The Irish finance minister Brian Lenihan said the corporate tax debate was no longer an issue.
Have you noticed that whenever EU official mentioned a financial ballpark frame, the ultimate number always comes in at the higher end? The Greek aid packages was roughly than what had been leaked to the press. In Ireland the original estimates were €45-90bn, then reduced to significantly more €10bn, while they are now €80-90bn. This is probably not the final number either.
The Reuters wrap this morning had a number of interesting quotes from Spanish and Portuguese private sector economists. A Portuguese economist was quoted as saying that the Irish deal means that Portugal will also seek a deal. The Spanish economist said that once Portugal gets a deal, the markets will turn their attention to Spain.
Wolfgang Munchau on the latest developments
Wolfgang Munchau said it was always clear that Ireland would take the money. This is what the EFSF has been set up for. Portugal, too, will take the money, and that’s fine as well. But it does not change two fundamentally unresolved problems, for which the EU has neither a plan, nor a task force, nor an institutional setup: Ireland and Portugal are near insolvent – as their pretense of solvency is maintained by unrealistically optimistic growth rates. And current account imbalances are widening account balances – the underlying driver of the crisis.
Tony Barber on the latest developments
Tony Barber writes in the FT that the two biggest issues now are the prevention of contagion, and clarification on the German-inspired bail-in proposal. He said Portugal was in a better position than Greece and Ireland, as its banks are not as bad, and its public finances in better order. (We disagree. Portugal’s has an even worse problem. Its competitiveness is so out of sync with the rest of the eurozone that it is hard to conceive of a path back. As for the German bail-in proposals, there is not much that can be clarified right now. The proposals themselves are clear. The bond markets do not like those proposals, that seems to be the problem.)
Frankfurter Allgemeine on the latest developments
Frankfurter Allgemeine highlights dubious role in this rescue, highlighting the lie behind the claim in May that the EFFS has been set up so that it will never be used. Germany faces the choice between the pest and the cholera. It is now contributing more to the rescue of the European periphery than it admits, but failure to act would also have cost Germany, as the Depfa, a subsidiary of the Hypo Real Estate, is responsible for almost a third of all the Irish liquidity operations with the ECB. It was therefore not to be expected that Berlin would oppose the aid, which it otherwise might have. (That’s a point we have making time and again. The eurozone is financially so interwoven, that you can never allow a part – even a tiny country such as Ireland – to go bankrupt. Ireland and Greece are two of the smallest and geographically most remote member. If we cannot allow them to go down, nobody will. That is why bail-in is ultimately not credible, in the absence of ordinary transfer mechanism) The articles ends with an observation that the eurozone’s political leadership thinks increasingly short-term – something that is likely to lead to a catastrophe.
Strauss Kahn says eurozone governance inadequate
We know that he has been boiling over for some time now, though not in public. But Dominique Strauss Kahn is now getting publically more outspoken in his criticism of the European leadership. He called the eurozone’s governance inadequate. He is calling for the establishment of a single European labour market, and the creation of a central eurozone budget. There is more in Les Echos.
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