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If the euro is to have any chance of survival, fiscal unity must come, writes Willie Kealy

You kind of get fed up saying it after a while, but first principles are probably always worth restating. We have two problems, and they are separate problems. We spend more than we earn, and we have to put that right. And we owe so much in sovereign debt that we can never hope to repay it, so we need some help.

Reducing our deficit to 3 per cent of GDP by next year is the main reason for the austerity measures which the Troika is imposing upon us, but this is no bad thing. If we want to be competitive again, then we have to do it.

Our sovereign debt is another matter. Getting relief on the money we borrowed to shore up our banks and pay off their bondholders is a crippling burden that we brought upon ourselves, under heavy pressure from the ECB. Right now, we are paying that back in tranches of €3bn at regular intervals, but this cannot go on.

Unless we want to default on our sovereign debt, with all the negative consequences that would have, we have no choice but to keep paying, until ... Until what? Until the EU Commission, the ECB, the IMF and most of all, the German Chancellor, come round to our way of seeing things and agree that we are in a no-win situation. Of course, long-term there will be a solution. The euro is a faulty currency because while we all use the same money, there is no fiscal unity, so nobody is really in charge. But if the euro is to survive, fiscal unity must come. That is what Germany wants. That is what Germany is waiting for. If that is achieved, then Germany will come round to the idea of eurobonds, banking unity and common funds, whether pooled or otherwise. If this does not happen, then the euro will not survive.

However, this is a long-term solution, and our sovereign debt problem is an immediate crisis that requires a solution now. Angela Merkel holds a coalition government together in Germany and faces elections next year. She is not immune to political pressures from the German electors who see themselves as prudent and hard-working while the rest of us Europeans are feckless and lazy. This is not improved by the sight of 30,000 Irish soccer fans marauding around Europe. Germany does recognise that, as the powerhouse of Europe, it has a responsibility to help the rest of us, but unfortunately it also sees it as good husbandry to dole out this help in as parsimonious a manner as possible. In the case of Greece, this amounted to keeping the economy on life support. In the case of Spain last week, it was a €100bn gamble that they could bluff the markets. It didn't work. In the case of Ireland, they reckon we are doing fine -- after all, we are not rioting in the streets, so we must be.

So what will it take to persuade the Germans to loosen the purse strings? What would make it in their interest to do so?

Well, Germany wants the euro to continue as a currency. It is not in Germany's interest to see a break-up -- any more than it is in ours. There are those here who, from time to time, call for the end of the euro. They suggest that we should just default on what we owe and go back to the punt. The fact that there would be some benefits from the devaluation that

would follow, ignores the down-side -- a downside that would make our present austerity look like luxury. We would be cut off from our present source of bailout funds, and yes, the markets might eventually forget our default and do business with us again. But "eventually" would be a very painful process.

There are some who think it would be great to get out from under the yoke of the Troika -- they assume the markets would ignore a default and start lending at reasonable rates straightaway. They wouldn't. Ask Iceland. Ask Argentina.

Besides, all this concentration on getting back to the markets has been overblown. We almost certainly won't be in a position to borrow on the open market at an acceptable rate next year. But why would we want to be? We have a source of funding at present which is cheaper than the markets and the only surcharge is the insistence by the Troika that we get our affairs in order. So, while it is important that we get ourselves back into the kind of solvency that would allow us borrow from the markets, this should not be confused with merely convincing the markets that we have learned to behave ourselves, whether we have or not.

Without letting the Government off the hook for its soft and wheedling approach to securing some sort of accommodating on our sovereign debt, it has to be said that we do not appear to the rest of Europe, and to Germany in particular, to have a strong case. But the euro is close to breaking point. If it is to be saved, there will have to be help; help to get all the currently sick economies back on their feet. And that will include us. Things will have to get worse before they get better, but there are so many pressure points right now that it could blow at any minute.

That is when Mrs Merkel will have the ammunition to say to her coalition partners and to her people that now, finally, Germany has to act. That is when they will finally see their own self-interest. For Ireland, that could mean a re-scheduling of a good portion of our sovereign debt over decades -- a facility Germans will be familiar with from paying war reparations. But there will be a price. Germany will almost certainly push for a speeding up of fiscal integration.

For us, that should be easier than for others. After all, we have had a few years now of outsiders having oversight of the Department of Finance, and it hasn't



killed us. And while we got a bit mad the first time the Bundestag found out what the Government was up to before we did, last week we kind of welcomed getting information from that source. In fact, it was refreshing to hear from an institution that obviously believes in openness and transparency, for a change.

Of course, Sinn Fein and others will oppose. The Taoiseach of the day will be likened to Diarmuid McMurrough. But every step we have taken has been along this road and it is logical to complete the journey to the kind of long- term economic stability that will help ensure we never get into another mess like this again.

Sunday Independent