Our small voice can cause a big stir around Europe
Once we make wealthy developers cough up, then we can demand burden sharing from foreign banks, writes James Fitzsimons
Inflation is a global concern now. If prices spiral out of control, they will damage European competitiveness, which is already weak. This will give rise to even more job losses across Europe. With unemployment in Ireland heading toward 500,000, the affect would be devastating.
Last week, the pressure forced the European Central Bank (ECB) to increase interest rates by 0.25 per cent. This rise might be the beginning. It certainly is not the end. The Government knew it was coming and yet it did not stand its ground in the EU. We were expecting interest rate cuts, but instead they are rising. By backing down, the door has closed on any meaningful financial negotiations until after European banks undergo their stress tests in June.
While we know our own senior bondholders include some of the main European banks, no one is saying who they are. The stability of the European banking system is dependent on them passing the more stringent capital adequacy requirements under Basel III. While we have been trying to plug the holes in our contaminated banks with ECB funds, banks across Europe have been building up their reserves. This has met with some success, but it is still volatile. In spite of the inherent problems in Irish banks, the stability of the European banking system as a whole is still under threat.