Friday 19 January 2018

Dan White: Ireland may just leave one bailout for another

Dan White

Dan White

WITH Greece claiming that it is about to secure a two-year extension to its bailout and the Germans making it clear that any deal on Irish bank debt will come with strings attached, Europe's bailouts are rapidly morphing from temporary little arrangements into permanent fixtures.

Remember the words of the song Hotel California by Seventies supergroup the Eagles -- "you can check out any time you like, but you can never leave"? It's beginning to feel that way with eurozone bailouts.

First up was Greece, which claimed last week that it was about to be granted a two-year extension to its (second) bailout. While Germany and the European Central Bank moved quickly to deny claims by Greek finance minister Yannis Stournaris that his country was about to agree a two-year extension, it's difficult to resist the conclusion that the troika will have to cut the Greeks some slack.

With the Germans having apparently concluded, at least temporarily, that the cost of ejecting the Greeks from the eurozone exceeds the benefits, the troika may find that it is impossible to avoid extending the Greek bailout. With the Greek economy continuing to shrink faster than the Greek government can cut spending, sticking to the current austerity schedule risks making a bad situation even worse.

Is something similar about to happen to us?

While the Government is adamant that we will exit our current bailout as scheduled at the end of next year, any return to full economic and fiscal sovereignty still looks a long way off.

With the chairman of the Bundestag budgetary affairs committee, Norbert Barthle, insisting that a deal on the €64bn of Irish bank debt involving the ESM would come with tough conditions, any such deal is rapidly coming to resemble a second Irish bailout -- no matter what the Government might say.

Now that Spain looks set to join Greece, Ireland and Portugal in the bailout club, an important question needs to be asked: are the eurozone bailouts temporary, time-limited programmes designed to help countries overcome short-term difficulties?

Or will they turn out to be long-term, semi-permanent measures?

If the latter turns out to be the case, then what we are seeing is the first stage of what amounts to a European fiscal union with the Germans, the Dutch and the Finns being forced to permanently subsidise the periphery, which is looking increasingly like the eurozone's very own version of the Mezzogiorno.

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