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EU Situation, as seen by the Australasians ...
EXCELLENT .......
WEDNESDAY, NOVEMBER 17, 2010
Whose Debts Will We Take Over Next?
It sounds like George has buckled and that we're now in for £7bn of the Irish bail-out:
“Ireland is our closest neighbour. And it's in Britain's national interest that the Irish economy is successful and we have a stable banking system. Britain stands ready to support Ireland.”Did he have a choice?
In the circs, probably not.
Take a look at the handy chart above. It's taken from last week's IMF report on the UK economy, and it shows UK banks' exposure (aka loans) to Ireland along with their exposure to three of the other PIIGS. As we can see, they are in for well over £100bn to the Emerald Isle, and getting on for £300bn to the group as a whole (ex Italy).
In theory of course, we should be able to say to the banks, that's your problem mate - you lent the money on all those housing estates in the peat bogs, now you can reap the rewards.
But in practice, we're stuffed. Post-Crock, we rediscovered the fact that taxpayers have to protect retail bank depositors here at home. And that means guaranteeing retail banks. Which as things stand, means guaranteeingall UK banks.
But let's hope George is at least insisting on some pretty tough conditions - no backsliding on spending cuts and close IMF monitoring.
We've only got to look at Greece to understand what could lie ahead in Ireland. Their existing government is going down, and its successors will look for every opportunity to backtrack and obfuscate. We must not accept that.
Who's next?
Well, as the chart shows, UK banks have chunky exposure to Spain, and if you're going to do Spain you might as well chuck in Portugal. We Northern Europeans will soon be on the hook for the whole lot.
It doesn't bear thinking about, but here's a small suggestion - when it comes to the crunch (ie outright default) HMG should do a debt for villas swap. Hard-pressed UK taxpayers could then be offered cheap villa holidays in the sun to take their minds off their 70% tax rates.
Apart from that, Tyler can see no light in the Euro-gloom.
Financial Crisis
UK pledges £7bn to help bail Ireland out of debt crisis
George Osborne has pledged British support of up to £7bn for an EU bail-out of Ireland and its banking sector.
The Chancellor arrived in Brussels for a meeting of EU finance ministers aware that exposure of British financial institutions to Irish banks is £140bn.
“Ireland is our closest neighbour. And it's in Britain's national interest that the Irish economy is successful and we have a stable banking system,” he said. “Britain stands ready to support Ireland.”
Britain is not part of the 16 member eurozone but is a member of a £51bn “European Financial Stabilisation Mechanism” that will be used to aid Ireland.
The European Commission said a potential British role was “under discussion” as EU and IMF officials headed to Dublin today to carry out “intensified, short and focused” preparations for a bailout of Ireland.
Officials said that multi-billion cash injection could be ready within “five to eight days” of a eurozone decision to step into save Irish banks.
The intervention is climb down for Ireland after other eurozone countries pushed it into accepting an intervention against its wishes.
Brian Lenihan, Irish finance minister, insisted that a bail-out was not inevitable but admitted that Irish sovereignty was compromised by its membership of the euro. “When you borrow, you lose a little bit of your sovereignty, no matter who you borrow from,” he said.
“Sovereignty, in my view in a European context, is shared. We have a duty to the eurozone as our currency and it is Ireland’s currency as much as it is Germany’s or France’s. We have a duty to sustain the stability of the eurozone. Ireland is the zone of attack in the eurozone.”
Mr Lenihan said talks with the IMF-EU team would begin on Thursday.
The European Central Bank and other euro currency members have been concerned that that Irish banks have been increasingly dependent on support and putting Ireland under intense pressure to give to controversial aid conditions that will reduce the country economic independence.
No details of a rescue emerged at meeting of eurozone ministers last night but it is likely that a bail-out will be choreographed with an Irish four year spending plan and austerity programme which could be as early as next week.
Jean-Claude Juncker, Luxembourg’s Prime Minister and chairman of the eurogroup, said he expected a decision on the bail-out “within the coming days”.
“Market conditions have not normalised and pressures remain, giving rise to concerns that further reforms and stabilisation measures may be appropriate,” he said.
EU economics commissioner Olli Rehn said the talks would centre in the main on a package to stabilise Ireland’s banks and said it would be available if the Government choose to seek aid.
Olli Rehn, the European economic and monetary affairs commissioner, said the EU-IMF teams sent into Ireland would have an “accent on restructuring its banking sector”.
“This can be regarded as an intensification of preparations for a potential programme in case it is requested and deemed necessary,” he said. “This is a time for cool heads and clear determination to take the necessary decisions to that effect both at the EU level and in every member state.”
The Irish government has insisted that it can afford to repay its record debts, despite having an annual deficit equivalent to almost a third of the size of its economy.
The growing market turmoil surrounding Ireland has also threatened to push Spain and Portugal into crisis. The cost of Spanish government borrowing rose sharply on Tuesday.
A full EU-IMF bail-out would mean Ireland losing key areas of political and economic sovereignty. This would be deeply controversial and could cost the Irish government its majority.
Senior EU figures have suggested that Ireland should increase its low corporate tax rates, regarded by the Irish as key to Ireland’s economic recovery.
Herman Van Rompuy warned on Tuesday, that the deepening debt crisis in Ireland which has spread to other parts of the eurozone has left thesingle currency and EU fighting for their “survival”.
“We are in a survival crisis,” he said. “We all have to work together in order to survive with the euro zone because if we don't survive with the euro zone, we will not survive with the EU.”
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