Economic crisis: Euro fall threatens to torpedo recovery
Ireland on right track but future of single currency now at stake
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THE spreading Greek debt crisis threatens to derail clear signs of an economic recovery at home and abroad.
Violent riots in Athens resulted in three deaths and cast serious doubts over the success of the emergency €110bn loan package agreed last weekend.
A man and two women -- one four months pregnant -- were killed in a petrol bomb attack on a bank in central Athens amid growing anger at government austerity measures.
On financial markets, conditions looked no better than last week, before the Greek bailout package was announced.
The price of Greek government bonds failed to recover and Irish and Portuguese bonds fell sharply.
German Chancellor Angela Merkel made what some said was the most passionate speech of her career in the Berlin parliament, as she sought to convince MPs that the future of the euro was at stake unless they approved the Greek rescue.
Economists last night said the prospects of economic recovery were also under threat.
"I don't know how this will play out," John FitzGerald, chief economist at the Economic and Social Research Institute (ESRI) said.
"It is pretty worrying. We need the European economy to recover if we are to get out of our problems."
The European Commission yesterday predicted the Irish economy would grow by 3pc next year -- in line with Government forecasts and a 15pc improvement on its November forecast.
That would be almost twice EU average growth and could keep the Government's four-year budgetary plan on track.
The latest Exchequer figures published last night show tax revenues higher than expected last month and the public finances back on target after two months' slippage.
Estimates for the first four months of the year are generally in line with predictions, suggesting the economy is moving in line with government forecasts predicting a return to growth in the second half of this year.
"Ireland entered into this crisis in very early phase and had a very deep early recession, and subsequently took very bold and credible measures of fiscal consolidation, which are now paying off," EU Commissioner for Economic and Monetary Affairs Olli Rehn said at a Brussels briefing.
Surveys from the US showed the all-important services sector continued to grow last month, suggesting the recovery in the world's biggest economy is being sustained.
But all of this could be undermined if the euro crisis is not resolved. Ms Merkel said Europe's fate was at stake in the most serious crisis of the common currency's 11-year lifetime, and other eurozone countries could be hit unless the rescue for Greece succeeded.
Mr Rehn said it was vital to stop the crisis spreading beyond Greece. "It's absolutely essential to contain the bushfire in Greece so that it will not become a forest fire and a threat to financial stability for the European Union and its economy as a whole," he said.
Analysts are already suggesting that the European Central Bank may have to do the unthinkable and buy government debt itself to shore up investor confidence so that countries like Portugal and Spain can borrow what they need.
Mr Rehn added he shared Finance Minister Brian Lenihan's assessment that "the worst is over and the Irish economy is now recovering".
But he warned more harsh cutbacks may be needed to balance the books, saying Ireland should "continue vigilantly and if needed take even further measures".
Warning
European stock markets and the euro fell sharply again yesterday afternoon after Moody's rating agency warned it could downgrade Portugal's debt.
At home, the Government approved the terms of Ireland's participation in the EU rescue package for Greece.
Under the legislation, Ireland will lend Greece €500m this year and up to €1.3bn in total over the next three years.
Taoiseach Brian Cowen yesterday insisted Greece would pay back the loans as its economy improved. The Taoiseach will attend a meeting of EU leaders tomorrow night to conclude the agreement. He said the process would safeguard the financial stability of the eurozone area.
Fine Gael leader Enda Kenny and Labour Party leader Eamon Gilmore want the Government to brief the opposition on the loans.
- Brendan Keenan, Fionnan Sheahan and Sarah Collins
Irish Independent
