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New Open Europe briefing: What will the Irish bailout actually solve?
Open Europe has published a new briefing looking at the different bailout options for Ireland. It argues that a one-off bailout or stricter budget rules will do very little to solve the eurozone's problems - although it can serve to buy valuable time for Ireland, which is in better shape than Greece and Portugal. The briefing notes that the real problem Ireland and other weaker eurozone economies face is how to regain competitiveness inside a monetary union, without the option of currency devaluation at their disposal.
Open Europe research Open Europe press release
Irish Taoiseach announces early election for next year;
Markets turn attention to Portugal and Spain
In the aftermath of Ireland's request for a bailout from the EU and the IMF, the Green Party - the junior partner in the Irish coalition government - has threatened to withdraw support unless a general election is called in January. Irish Prime Minister Brian Cowen conceded yesterday evening that he would dissolve parliament "in the new year," but only once a new 2011 budget and the bailout have been negotiated, reports the Irish Times. However, Cowen's weak majority may not garner the support necessary to pass the 2011 budget. If he fails, he may be forced to dissolve the Parliament on 7 December, reports the FT.
Meanwhile, Bloomberg reports that Ireland's decision to ask for a bailout has done very little to calm the markets and bring down borrowing costs for weaker eurozone countries. The article notes that the extra yield demanded to hold Portuguese 10-year bonds rather than German bunds increased by 13 basis points to 420. The FT quotes Jens Larsen, chief European economist at RBC Capital Markets, saying: "The market reaction tells us that the eurozone debt crisis is far from over. The market is unsure of how events will unfold, which explains the muted reaction today." CNBC quotes Cornelia Meyer - CEO at MRL Corporation - predicting that a Spanish bailout is likely to cost up to €500 billion and adding that there is "no real mechanism" to deal with it.
Die Welt reports that, of the estimated €90 billion bailout package for Ireland, Germany could pay up to 28% of the €60 billion the EU is set to provide, with the remaining €30 billion provided by the IMF. Bloomberg reports that Goldman Sachs estimates that the total aid package for Ireland may amount to €95 billion. Spanish economic daily Expansión reports that the Greek and Irish crisis will cost Spain €7.1 billion extra in interest as the eurozone crisis widens yields on government bonds.
The conditions of the potential bailout have yet to be clarified. The Irish Times quotes Professor Peter Bofinger, an economic adviser to German Chancellor Angela Merkel, saying, "You can't ask for solidarity on the one hand and on the other side not behave fairly on the [corporate] tax issue." He suggested that Ireland might be convinced to raise its corporate tax rate in exchange for a preferential interest rate on loans from EU partners. A spokesman for EU Economic and Monetary Affairs Commissioner Olli Rehn is quoted by Der Standard saying that "it is very likely that Ireland will not be a low-tax country anymore."
However, Irish Finance Minister Brian Lenihan told RTÉ Radio yesterday that, as far as Ireland was concerned, the issue was "off the table". In an interview with German daily Tagesspiegel, Luxembourg's Foreign Minister Jean Asselborn has said that "with regard to corporate tax, we need to be careful not to strangle Ireland. Ireland has already economically lost a lot. If we deprive it of all its seductive power as a site for production, it will sink even more. And the more it sinks, the higher the bill for Europe will be in the end."
Director of the Instituts der Deutschen Wirtschaft Michael Hüther is quoted by Handelsblatt warning that a permanent crisis resolution mechanism would not cope with the loss of competitiveness experienced by weaker eurozone economies, but would "make them dependent on European funds [...] undermining the legitimacy of the currency union in stronger countries such as Germany." A separate article in Handelsblatt quotes German Liberal MP Frank Schäffler saying that "providing liquidity to indebted countries is already a transfer union." An article in the FT notes that the bailout plans for Ireland provide "another example of the increasingly political role being played by the euro's monetary guardian [the ECB]."
FT Deutschland reports that, due to the ongoing financial turmoil in the eurozone, Czech President Vaclav Klaus has said that his country "is not in a hurry" to join the single currency.
Meanwhile, in a statement yesterday in the Commons, UK Chancellor George Osborne confirmed that the UK would offer loans worth between £7bn-£9bn to Ireland as a "friend in need" and as "it is overwhelmingly in Britain's national interest". The Government did not specify whether the UK would set conditions on its aid, notes the FT. Sweden also announced yesterday that it is considering offering Ireland a bilateral loan.
Osborne also announced that the Government wants to negotiate a deal to exclude the UK from any future eurozone bailout agreements by changing the rules of the EU mechanism so it reverts to its original function: dealing with natural disasters and helping non-eurozone countries with balance of payments problems. Open Europe's Stephen Booth appeared on BBC Radio Ulster this morning arguing that the Irish bailout won't solve the euro's inherent flaws as the single currency will continue to produce diverging competitiveness across the eurozone.
Mail Irish Independent Irish Independent Irish Independent Times WSJ FT FT Sun WSJ FT WSJ FT FT FT WSJ Irish Times Euractiv Irish Times Irish Times Irish Times Irish Times Irish Times Irish Times 2 Telegraph Telegraph Telegraph Euobserver Independent El Pais El Pais 2 Europa Press El Mundo Guardian Guardian 2 El Pais Expansion BBC European Voice European Voice 2 Mirror Le Figaro Les Echos Tagesspiegel Independent Guardian Welt Reuters IHT DPA Handelsblatt Handelsblatt 2 CNBC Die Welt FAZ FAZ: Sinn Der Standard Bloomberg
Eurozone comment round-up
Writing in the FT, Gideon Rachman argues: "My current best guess is that the single currency will indeed eventually break up - and that the euro's executioner will be Germany, the most powerful country and economy inside the European Union." Handelsblatt notes that the current crisis has "once again revealed the two-tier society of the eurozone." In the Times, Ruth Lea argues: "Whether you talk to fund managers or City economists, speculation is growing that the eurozone will break into a core and a periphery, or that the weaker countries will unilaterally peel off."
On her BBC blog, Stephanie Flanders writes, "Yes, the Irish authorities let the property market and the banking system get far out of control. In a sense, they let the whole country go slightly mad, high on rising property values and a tidal wave of cheap credit. But didn't they all? [...] Britain's mistakes, in the boom years, were different in scale to Ireland's - but not in kind. The biggest difference is that we did not choose to join the euro."
In the Guardian, Larry Elliott argues, "The problem for Ireland, Portugal, Greece and Spain (and Italy and Belgium for that matter) is that since joining the single currency they have become less competitive in relation to Germany, the eurozone's biggest and most important economy [...] Bailouts, no matter how big, fail to address this basic problem with monetary union."
Handelsblatt's front page carries the headline: "The next Ireland is called Portugal". In FAZ, columnist Holger Steltzner warns against the EU's "bizarre bailout logic" that because Ireland has been granted a bailout, then "there is no need to worry about Portugal and Spain."
In Spanish economic daily Expansión, journalist Tom Burns Marañón argues: "The next foreseeable step is that the other peripheral European countries, whose welfare is in question, will question the legitimacy of a supranational body which holds very little democratic counterweight to impose blood and tears."
An editorial in Les Echos notes that: "Dublin needs the same money as Athens... for a country which is almost three times less populated! After the Irish crisis, Europe will have to completely revise its criteria for the evaluation of what sound economic policy is. And work with the idea that if public insanity can reach a ceiling, private delirium can go even further."
In Le Figaro, columnist Yves de Kredrel argues: "The Greek domino fell during last spring. The Irish domino has been wobbling over the last days. The Spanish domino will follow suit, along with the Portuguese domino. This is all very sad for those experts who conceived the eurozone and put it into practice - by pursuing an often absurd monetary policy which led to the 'genocide' of our industry."
A briefing by JP Morgan argues: "In the wake of the 1992 ERM collapse, why did Europe attempt another monetary union given large differences in language, labour mobility and productivity?"
FT: Rachman BBC: Flanders BBC: Hewitt BBC: Robinson WSJ: Editorial FT: Leader Times: Leader Times: Treneman Economist: Bagehot Mail: Glover Times: Lea Expansion: Marañón Guardian: Traynor Economist: Charlemagne WSJ: Wheatcroft WSJ: Analysis FT: FitzGerald Spectator: Coffee House Economist: Bagehot John Redwood's diary FT: Stephens Independent: McKittrick Guardian: Elliot IHT: Vinocur Independent: Leader Independent: Lawson Independent: Prosser FT: Mohi-uddin Handelsblatt Handelsblatt 2 FAZ: Steltzner Le Monde Les Echos Le Figaro Zero Hedge
Commissioner calls for "reconciliation" over EU tax in new budget proposal
A new proposal by EU Budget Commissioner Janusz Lewandowski aimed at breaking the deadlock between the European Parliament and member states over next year's EU budget will today be discussed by the European Commission. Euractiv has seen a draft of the proposal and notes that it "closely mirrors" the text rejected by the UK, Sweden and the Netherlands last week.
The proposal comes with a "political declaration" from Lewandowski saying that he aims to convene top-level "regular meetings" between MEPs and member states on the EU's own resources and the introduction of an EU tax during future negotiations on the next long-term budget for 2014-2020.
Open Europe's list of top 50 examples of EU wasteful spending continues to receive coverage across Europe. The list is cited by Euractiv Slovakia, by Dutch magazine Elsevier and in Hungarian paper Magyar Szó.
Elsevier Euractiv.sk Magyar Szó
Martin Callanan MEP has been elected to lead the Conservative delegation in the European Parliament.
The BBC quotes Open Europe's Stephen Booth in an article looking at the EU's citizens' initiative.
The FT notes that nine EU countries, mainly drawn from the former eastern bloc, are demanding a change in accounting rules to recognise the reforms they have made to their pensions systems.
European Voice reports that the EU has given Ukraine a list of conditions the country needs to fulfill before visa requirements for Ukrainian citizens travelling to the EU can be lifted.
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