Monday 18 November 2019

Kenny faces tightrope walk in Brussels

Thomas Molloy

ENDA Kenny will have a difficult balancing act in Brussels today. As the continent's leaders fret about Spain and the survival of the euro, the Taoiseach risks looking like a bigger version of Jackie Healy-Rae if he bangs on about Ireland's interest rate.

All eyes will be on Spain's problems, and every other problem will be seen through that prism. Our interest rate will be trimmed if it helps Spain -- and left untouched if it doesn't. Mr Kenny's task will be to get what he wants, while not appearing to endanger Europe.

Germany, Finland, Austria and the Netherlands have nothing against us; their big fear is that propping up Ireland could encourage Portugal and Spain to slacken their austerity drives.

The continent's core nations know that this cannot be allowed to happen because Spain is too big to save. Spain simply must survive by itself.

Failure would spell the end of the euro and set back the European project by at least a generation, as well as impoverishing countries such as Ireland which would be left with worthless currencies. It is this that keeps ECB chief Jean-Claude Trichet up at night, not Ireland and Greece.

Spain's economy is bigger than Ireland, Portugal and Greece put together. Spain and Portugal already find themselves in a situation very similar to the one Ireland was in a few months ago when the bond markets finally gave up on us. The cost of 10-year borrowing for Portugal has risen above 7pc -- a level that is completely unsustainable.

Spain, which is borrowing at 5.5pc, is enduring the confidence-sapping downgrades that Ireland faced from Moody's and Standard & Poor's.

Like Ireland, Spain has a property crisis, wrapped up a banking crisis standing side-by-side with a fiscal crisis. When Moody's cut Spain's bonds yesterday, the rating agency's reason was that the cost of shoring up the banking industry will eclipse government estimates, just as they did here.

Spain is not taking this lying down. Rather than trying to shoot the messenger like the Irish and Greek governments, Madrid has implemented the deepest budget cuts in at least three decades, but the problem for the government there is that there is little faith in the banking system.

The cajas are Spain's Achilles heel -- a motley collection of regional lenders that frighten investors and could end up owing many billions. Debts accumulated by Spain's 17 regional governments are another problem, but the real problem is that trust is gone and the markets are looking for reasons to go elsewhere. It is a feeling we know well.

Irish Independent

Today's news headlines, directly to your inbox every morning.

Don't Miss