Lenihan’s hopeful argument that the two countries are fundamentally different goes as follows – Greece cooked the books and lied about their financial and debt situation; its national debt is nearly 130% of Greek GDP; the Greek economy is declining and its debts are rising; there is resistance causing political and financial instability in Greece. In addition, Lenihan says Ireland is moving to improve competitiveness and tackle the problems in the banking system, unlike Greece.
Ireland did not cook the books? Recently, Ireland’s current budget deficit jumped from 11.5% to 14.3% of GDP. Why? Because the EU insisted that the Irish government could no longer pretend that the cost of the bank bail out was not a burden on the states finances. When bank assets were first being transferred to NAMA, at the start of April, it became clear that the banks had continuously lied about the extent of their bad debts, forcing the government to announce a massive increase in the cost of the bank bail out over night. What is all this except a cooking of books!
It is true that the debt in Ireland, at around 85% of GDP, is significantly lower than Greece’s but its closing in fast, as in 2007, it was just 25%. In fact, Ireland’s 14.3% current budget deficit is worse than Greece’s.
If there were strong reasons to believe that growth in Ireland was likely to take off, thereby giving a basis to reduce the debt by creating new wealth, then perhaps it would be clear that Ireland is in a different position to Greece, but is that likely?
There seems to be a stabilisation of the economy, but at much lower level than before, with no real prospect of any return of ’Celtic Tiger’ growth to help avert the slide into indebtedness. In fact, the property market is continuing to decline and therefore, it is likely that the crisis in the banks will get worse, meaning that this government will go into bigger debt to bail out the banks even more.
New and deeper cuts?
In that scenario, it is inevitable that they would impose new and deeper cuts. Like in Greece, at a certain point, cuts will not be enough to calm the “financial markets” and the Irish economy could have the legs pulled from under it by the sharks and the speculators.
The cuts, rather than providing a platform to salvation, will further undermine the economy and threaten a downward descent into deeper debt and crisis. In fact, one of the reasons for the recent decline in the euro is the fear that the austerity measures across Europe could already be pushing Europe back into full recession.
The reason the EU came out with a new e750 billion deal in early May, on top of the e110 billion for Greece, was precisely because they are scared stiff of collapses in Portugal, Spain and Ireland, which could potentially mortally wound the euro as a currency.
“We have closed ranks to save the euro,” Christine Lagarde, French Finance Minister, recently said. They are hoping, having delayed desperately on assistance to Greece, that this proactive commitment will ward off attacks on the euro. So far, their hopes have been in vain, as the euro has continued to decline.
The e750 billion package is another confidence trick – they are hoping that by stating what they would do in the event of the crisis getting worse that they will not have to do it. But the debt and investment crisis that capitalism is suffering from cannot be just wished away, it is inevitable that there will be much more economic pain. The issue is who will pay.
They have said e500 billion will essentially come from the 16 Eurozone countries and e250 billion is from the IMF. The IMF involvement underlines that the US, in particular, is very concerned at the instability that Europe is causing the global economy, in the context that many economists are expecting a significant decline in China, sooner rather than later, and possibly new problems in the US, when the affects of Obama’s stimulus packages fizzles out in the second quarter of this year.
“By establishing a e750 billion euro fund to bailout Greece and aid other struggling governments, Germany and other strong European states are chasing a dream – a single European currency and broader European unity – that may have no place in reality,” said Peter Morici, a professor at the University of Maryland.
Euro’s fight for survival
It is clear that the euro is facing a fight for its survival. If the currency continues to decline sharply, that will place huge pressure on the EU and all the countries individually.
Clearly the EU will try to intervene with cash and loans to bolster weaker countries whose problems are undermining the euro. But will the likes of German capitalism just continue to put money in when it clearly is not convinced that the situation can be saved?
For the indebted countries, every decline in the euro significantly increases their debts and crisis. In Ireland, we need to be prepared that a new crisis can hit extremely suddenly. Further problems in Greece, bad economic news in Ireland , a downgrading by a ratings agency of Ireland’s debts – all could exacerbate the situation and leave Ireland facing the same insolvency collapse that faced Greece.
At the moment, the respective governments have chosen to hang together, but at a certain stage they may decide to hang separately and, in so doing, completely undermine the whole EU project as we know it.
There are so many fault lines in the EU that it is impossible to tell where the next difficulty will come from. What is clear is that this crisis is far from over. Minister Lenihan and the whole cabinet should get the Ouzo ready; there could well be some Greek-style strikes and street parties after all!