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Mad as hell at Ireland

This week's bitter exchange in the European Parliament between EU Commission president Jose Manuel Barroso and MEP Joe Higgins demonstrated just how far our stock has fallen in Europe as the twin Irish fiscal and banking crises have worsened.

Higgins claimed that the European Financial Stability Facility, AKA the bailout fund, was "nothing more than another tool to cushion major European banks from the consequences of their reckless speculation on the financial markets" and was "a mechanism to make working class people throughout Europe pay for the crisis of a broken financial system" which would transfer tens of billions of euro of bad debts "on to the shoulders of the Irish people".

Barroso's angry response was in stark contrast to the normally soporific tone of European Parliament proceedings. Instead of larding his reply with the anodyne jargon we have come to expect from senior eurocrats, Barroso responded with a vehemence that shocked his audience.

"The problems of Ireland were created by the irresponsible financial behaviour of some Irish institutions, and by the lack of supervision in the Irish market."

Barroso then went on to state: "Europe is now part of the solution; it is trying to support Ireland. But it was not Europe that created this fiscally irresponsible situation, and this financially irresponsible behaviour."

Raw nerve

So what prompted the normally mild-mannered, in public at least, Barroso to round on Higgins? While it could be argued in part justification that Higgins had got under his skin, a not uncommon occurrence it must be said, it is clear that the Irish MEP had touched a raw nerve.

As the eurozone financial crisis continues to worsen, the pressure on Barroso as EU Commission president has reached almost unbearable levels. With Ireland being in the eye of the eurozone storm, there is growing irritation in Brussels at events in this country which, if unchecked, could result in the destruction of the eurozone and possibly the entire European project.

Was Barroso taking out some of his frustrations on Higgins? Stranger things have happened.

Make no mistake about it. The crisis of the eurozone has now become the most serious challenge to face the EU in its 56-year history. The single currency, which many europhiles quietly hoped would create the conditions necessary to push through full fiscal as well as monetary union with the EU effectively having a single treasury, taxation system and a single currency, has instead turned into a Frankenstein's monster that threatens to destroy its creator.

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It was all so different way back in November 2004 when Barroso, who had been prime minister of his native Portugal, became the 11th president of the European Commission.

Initially the jovial Barroso was a welcome contrast to his disappointing predecessor Romano Prodi. Barroso's presidency also benefited from the apparent success of the euro.

After a rocky start the single currency seemed to have been successfully bedded down by the middle of the last decade.

Single currency

As the euro soared against the dollar and the yen there were even mutterings that the single currency might one day replace the mighty greenback as the world's principal reserve currency.

The positive mood music was further heightened by the apparently successful negotiation of a new European Constitution, which was signed by the member states in October 2004, a few weeks before Barroso became EU Commission president.

Unfortunately someone forgot to tell the people of Europe. Despite the many benefits which it has brought them, not least in making a fourth Franco-German war unthinkable, Europe's diverse citizens have never really warmed to the EU. It has instead remained the preserve of the elites.

This was dramatically illustrated by the fate of the European Constitution. In 2004, when the optimism generated by the constitution was at its height, no fewer than 11 EU member countries (including Ireland) promised to hold referenda. Unfortunately, this enthusiasm for securing popular approval barely survived the constitution's first encounter with the voters.

In May 2005, it was rejected by French voters while Dutch voters gave it the thumbs down the following month. While the constitution was approved by the voters of Spain and Luxembourg it was clear that it was dead in its existing form.

Instead, the European Constitution was repackaged as the Lisbon Treaty which, with the exception of Ireland -- where we held not one but two referenda on it -- was to be ratified exclusively by national parliaments.

While this change of tack may have been the only way of implementing much-needed reform of EU institutions following the admission of 10 new members in 2004, it did nothing to buttress the EU's democratic credentials.

This meant that when the credit crunch first struck in August 2007, with potentially devastating consequences for the euro, there was no popular backing for action at a pan-European level.

Instead each of the individual eurozone countries did their own thing. The fractured nature of the eurozone's response to the global financial crisis was perhaps best illustrated by Ireland's decision to unilaterally guarantee all bank deposits and bonds, without first telling the other eurozone member countries, on the night of September 29-30, 2008.

Of course as we now know to our cost, the bank guarantee made Ireland's situation worse rather than better with the escalating cost of bailing out the Irish banks ultimately leading to the de facto bankruptcy of the State and the decision to seek an EU/IMF bailout package in November 2010.

The finances of several of the other peripheral eurozone economies were also unravelling. Greece was the first to seek a bailout in May 2010 -- after the revelation that the previous conservative government had been cooking the books destroyed investor confidence. Ireland followed, six months later, and most analysts expect Barroso's native Portugal, possibly followed by Spain, to be the next in the queue.

Throughout the worsening eurozone crisis the ECB and the EU Commission have both been playing catch-up. Hamstrung by the reluctance of Germany to underwrite an adequately-resourced rescue fund, the European institutions have been forced to largely make it up as they went along.

While Germany reluctantly agreed to the creation of a €750bn IMF/EU bailout fund at the time of the Greek crisis last May, most analysts reckon that even a fund of this magnitude would lack the resources to bail out Spain, let alone other eurozone countries such as Italy and Belgium, which have also been coming under pressure.

In fairness to Barroso, he can hardly be blamed for this delayed response. At every stage the EU has been hampered by the Germans, who not alone have never been completely reconciled to the loss of their beloved D-mark, but also rightly fear that it is they who will bear most of the cost of any expanded bailout fund.

That almost certainly won't spare Barroso from the wrath of Irish public opinion as anger mounts at the punitive 5.8pc interest rate the EU is charging us on the €45bn it is lending us as part last November's bailout.

This compares to the 3.1pc interest rate the IMF is charging on its €22.5bn portion of the bailout. It matters not that Barroso is known to have been working behind the scenes to get this interest rate reduced.

The EU Commission president is learning the hard way that when there is good news coming out of Brussels it is the national leaders who take the credit but when the news is bad it is the EU which ends up shouldering the blame.

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