Belmont Club

Center of Buoyancy

Rumors that Ireland may be in financial trouble has driven up the interest rates for Greece and Portugal. Fears for the one is driving concern for the others.  The Portuguese finance minister warned that although their need was not imminent,  Portugal might need a bailout.  Which telegraphed to investors of course that Portugal would need a bailout. The Greeks worried that a stampede was gathering.

George Papandreou, the Greek Prime Minister, blamed Germany for the crisis. … It created a spiral of higher interest rates for countries that seemed to be in a difficult position, such as Ireland or Portugal,” he said during a visit to Paris. “This could create a self-fulfilling prophecy … This could break backs. This could force economies towards bankruptcy.”

Forcing countries into bankruptcy might be intentional. The bankrupt countries would then be forced to choose between economic collapse or submission to the European Central Bank.  The Wall Street Journal described Ireland’s resistance to proferred bailout funds in terms formerly reserved to depict resistence to an armed invasion. “One has to admire the Irish for their pluck,” the WSJ wrote, “and for their striving to protect a rather weak negotiating position. If Irish ministers resist they know it would mean the spread of more investor panic to other countries. In theory, this could in time blow up the euro zone, trigger a depression and derail the European project.” The WSJ cannot imagine Ireland scuttling Europe. Nor can they imagine the Irish going it alone.  “Any country leaving would find that its new currency dropped like a stone (which would increase the relative size of its debts, still denominated in euros). It might default but it could not raise a penny on the markets to fund itself. Unless there is gold at the end of the rainbow, or 870 million barrels of oil off the west coast of Ireland, as was claimed yesterday, Ireland’s only option appears to be the euro. It long ago passed the point of no return.”

The sane alternative is supposed to be submission to Brussels.

Ireland is discovering, the events surrounding the sovereign debt crisis are driving much closer integration in the euro zone. In exchange for German guarantees, and EU-sponsored bailouts, the other countries in the single currency must learn to live by German rules. But then what? Accelerated by the crisis, a new model of government without direct accountability to voters is being constructed. And the democratic consequences have been given very little thought other than by a hardened band of opponents.

Telegraph columnist Simon Heffer, reasoning along the same lines, warned of a “dark age” on the continent. One in which an unelected central authority acquired the power to tell individuals what to do. “On a shimmering day last June, I was talking to one of our most intelligent diplomats about the future of the euro.” It could not survive in its form. Either the euro was destroyed by national politics and the single currency fell apart — or the politics of individual countries was subordinated to the euro.

He told me, matter-of-factly, that there would be a serious crisis again before Christmas, and he suggested that it might not even survive in its present form. He has been proved right about the first point. Whether he is right about the second is anyone’s guess, but if the markets have their way, he will be. … The price of staying in is a final, and perhaps near-permanent, surrender of what remains of Ireland’s economic sovereignty. The central bank in Frankfurt, funded by increasingly agitated Germans, has covertly been helping out tottering Irish banks. It would now, effectively, have to colonise Ireland … only complete sovietisation – central control of economies from Frankfurt, with tax rates, deficits and spending run by people who will brook no dissent – can produce a sound, coherent, European economy.

If Ireland knuckles under then it will be forced to the toe line of the continental powers. US News and World Report’s Rick Newman explains. What sunk Ireland was its decision to guarantee bank losses. The taxpayer bailout put the Republic on the hook for 175 percent of Irish GDP. The bond market is charging interest against fears Ireland can’t hack it. Europe is offering them handcuffs of gold. “A European bailout of Ireland would be manageable, and probably cost less than the Greek rescue. But Ireland doesn’t want it, because the EU and IMF would force austerity measures onto the island nation that could effectively end its appeal as a business-friendly nation with a high standard of living.”

Since Ireland is wealthier than other European nations that would essentially be lending it money, social programs would end up gutted, and taxes would soar. And Ireland’s 12.5 percent corporate tax rate—one of the lowest in the developed world—would almost certainly go up, taking what’s left of the roar out of the Celtic Tiger. If multinational businesses abandon Ireland, it could fall quickly down the list of Europe’s most prosperous nations.

The British, whose cupboards are bare as can be, are now offering Ireland a way out — or mayhap another set of golden handcuffs. The British chancellor of the Exchequer told Ireland that Britannia was prepared to ride to its rescue.

George Osborne pledged Britain’s support to Ireland to help it restore stability to its banking system this morning, as financial squads from the International Monetary Fund, European Central Bank and EU prepare to be parachuted into Dublin.

“We’re going to do what is in Britain’s national interest,” the UK chancellor said, as he joined other European finance ministers for a crunch meeting in Brussels.

“Ireland is our closest neighbour and it’s in Britain’s national interest that the Irish economy is successful and we have a stable banking system. So Britain stands ready to support Ireland in the steps that it needs to take to bring about that stability.”

But this may be too late for Spain as the bond market demanded more to support its debt. “Spain’s borrowing costs may rise at tomorrow’s auction of as much as 4 billion euros ($5.4 billion) of bonds as the European Union’s squabbling with Ireland over emergency aid threatened to infect neighboring countries.” Whether or not Britain’s empty purse will be enough to prop up Ireland remains to be seen.  Yet even if Brussels were to succeed in bringing the Emerald Isle to heel it would be a Pyrrhic victory.  The structural and demographic problems of Europe are not confined to Italy, Spain and Greece.  The European project is in deep trouble. Like the battleship Yamato in its final hours the flooding and counterflooding of compromised compartments are evening out the keel even as the entire ship settles deeper into the water. About all the bailout packages may achieve in the end is a managed European decline, like a dreadnought serenely going to Davy Jone’s locker with all flags flying.

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