Ireland is teetering on the edge as their budget woes appear insurmountable and bond yields and credit spreads blowout to new highs. It looks increasingly likely that Ireland will have to tap into the EFSF. Angela Merkel, however, is not prepared for taxpayers to take all of the losses:
GERMAN CHANCELLOR Angela Merkel is refusing to back down from her push to force private investors to share the burden of the euro debt crisis, which helped send Irish borrowing costs to record levels.
Speaking in Seoul, where she is attending the G20 summit, Dr Merkel acknowledged her demands have upset the markets but insisted it was unfair for taxpayers to be saddled alone with the cost of sovereign rescues. “Let me put it simply: in this regard there may be a contradiction between the interests of the financial world and the interests of the political world,” Dr Merkel said.
“We cannot keep constantly explaining to our voters and our citizens why the taxpayer should bear the cost of certain risks and not those people who have earned a lot of money from taking those risks.”
It’s a sad state of affairs when a foreign central bank and German Chancellor decide the fate of the Irish people, but this is the mess that single currency systems create. Quite honestly, it’s shameful that Irish politicians would even allow such a thing to occur. They have ceded their monetary sovereignty and destroyed their ability to protect their people. The ultimate role of any state should be to protect its citizenry at all costs. That is not the case in Europe and it is nothing short of inhumane.
As I’ve repeatedly stated, there is a moral hazard here that is beyond absurd. Setting the precedent that foreign governments will bailout struggling periphery nations is not sound policy. Where does it end? Does Greece tap into the fund? Then Spain? Then Portugal? Then Italy? At what point do the Germans realize that they are largely funding the deficit spending of all of these other nations? Do the core nations become permanent funding sources for the periphery and what will certainly be consistent and prolonged economic problems in the coming years? Surely something will give at some point.
The problem in Europe remains one of unity. They are not fully united and personally I find it incredibly difficult to ever envision a Europe in which Germans are happy consistently paying for Greeks to work fewer hours. They continue to kick the can in Europe. True structural change needs to take place. The periphery nations are not growing their way out of their budget woes. Austerity is failing with flying colors.
David McWilliams of The Post wrote an appropriate article earlier this year:
If a country decides to give up its currency and get into bed with another currency, it would seem ludicrous to entertain this move without being sure that the union was suitable. As we all know, there is a difference between fancying someone and making the thing last … In general, for a currency union to work, there should also be a single fiscal policy … This is how the currency unions in the US, Canada and Australia work … Guess what? None of these attributes was in place when Ireland joined the EU economic and monetary union (EMU) and the euro. So it is clear that we didn’t join for economic reasons. So why did we join? It seems that we were too insecure to behave logically and this national insecurity – particularly among our senior mandarins – prevented us from having a debate.
Are we expected to remain in this loveless marriage? As we saw in the past decades, divorces are now part of life. Ireland is, today, in a bad marriage – with no divorce. Like those Catholic fundamentalists who suggested that divorce would threaten the fabric of our society, the euro fundamentalists who run policy in Ireland suggest that, to leave the euro, would undermine the fabric of our economy. Like all fundamentalists, the thing they hate most is a sceptic. Lets hear it for the sceptics.
There is a famous statue of James Larkin on O’Connell Street in Dublin. Inscribed on it are the famous words he once spoke:
Ní uasal aon uasal ach sinne bheith íseal: Éirímis.
In English it reads:
The great appear great because we are on our knees: Let us rise.
The Irish people are on their knees. And for now, bankers and politicians are keeping them there. Let’s hope they rise.