While the specific agenda for tomorrow’s summit is still uncertain there is absolutely no doubt about how serious the issues are. The leaders have what may well be their final chance to show that they are capable of actually addressing the crisis which is engulfing the Eurozone. There is no longer any doubt that only dramatic, fast and comprehensive action can stop the situation becoming much worse.
The key principles for action were agreed in February. Since then there has been repeated delay and unforgiveable inaction which week after week has spread the uncertainty which was supposed to be tackled.
This summit is happening because the Chairman of the Eurogroup, Jean Claude Junker, looked with clearly-escalating panic at what is happening to Greece, Spain and Italy and understood that there is no more time. If Europe’s leaders departed for their August breaks without taking action they might well return to find a greater emergency and witnessing the end of the common currency.
Prime Minister Juncker is an experienced and knowledgeable leader. He does not exaggerate and he was right to request that this summit be convened. It may well be that full and final agreements are not possible, but the constant uncertainty which comes with acknowledging problems and failing to deal with them has to both end and be seen to end.
When Greece was given funding last year every country acknowledged that a more formal and comprehensive system for providing financial aid was now required. This was done only in part. Markets did not believe that the measures agreed were strong enough to deal with all possible eventualities.
Instead of properly appreciating how widespread contagion could be, there was a belief held by many that the only issue at hand was a few errant countries on the periphery. This was part of what lay behind the regular and deeply damaging briefings in October and November as a prelude to Ireland’s financial programme being required.
At that stage it was again agreed that the programme was too inflexible and needed to be made less onerous on countries. There was no negotiation possible on the interest rate because the policies agreed earlier in the year didn’t allow for it. While parties in our new government have consistently refused to acknowledge this, they know that their posturing on the issue before the election was just another short-term political game on their part.
In the first two months of this year there was a strong sense that Europe needed new policies which would;
- provide enough funding to be able to support even a large country;
- change the duration and cost of debts to make them more sustainable; and
- introduce fiscal rules which would provide medium and long-term confidence.
Each of these was agreed in principle in February and included in the March 11th communiqué. Unfortunately only the fiscal rules element was implemented quickly. The delay, uncertainty and anonymous briefings turned a confidence-building initiative into one which has had the opposite effect.
The threat to the Euro is not some abstract theoretical one – or the fantasy of doomsayers. The common currency can only survive if its member states can continue to see that the alternative is much worse and if investors have faith in it.
Ireland, along with others, has always accepted very serious constraints on its ability to act because of our commitment to collective action by states. But the status quo is no longer credible and something will have to give. For the sake of Europe I hope that it is the unbending resistance to debt restructuring rather than the currency itself.
The Greek government has taken many brave steps addressing a fiscal crisis which has been developing for twenty years. It has shown that it is different from its predecessors and it deserves extra time and greater flexibility.
It does not have Ireland’s export base or a number of our other long-term strengths – and it started this crisis with a dramatically higher debt than us. There is no evidence that it can sustain its debt and repayment burdens – and failing to acknowledge this with each new plan continues to be a root cause of the escalating crisis.
Whether it be through buy-backs in the steeply discounted market or any other range of moves, Greece’s sovereign debt needs to restructure now rather than wait for a more uncontrollable default in the future. The availability of the ESM for a second round of financing needs to be fully nailed-down by leaders. A combination of a restructured debt, secure medium-term funding and the economic plans of the Greek government can see that country through and we should support them in this.
The ECB’s role in this matter has been at best controversial and at worst extremely negative. At a time of such crisis, the Bank should not be falling back on technical rules to stand in the way of an essential policy. Its threat to withdraw all Greek funding if there is even a technical ‘credit event’ confirms once again that its rigid orthodoxies serve Europe badly.
It has been this country’s policy since last year to seek to impose significant losses on bank bondholders. Our proposals were vetoed by the ECB because of its fear of a contagion which has happened anyway. Unilateral action was not and is not an option because of other realities of funding for our banking system and public spending. However the reality of the deep discounts which the markets have imposed on bond values shows that the risks from imposing significant losses on bondholders are lower than ever.
The late Brian Lenihan provided for this in legislation and imposed the first haircuts. The Fine Gael / Labour government likes to ignore this when actually using this legislation.
Where once the valid argument was that imposing bondholder losses would provide a fatal blow to Ireland’s ability to return to the market – the evidence today is that failing to impose these losses is undermining our ability to return to market.
Both the Taoiseach and Minister Noonan have repeatedly said that they do not intend raising the issue of bank bondholders until the Autumn. They have done this even though they have worked to hype minor announcements as being deeply significant.
If the Greek debt issue is being addressed now so too the Irish bank bondholder issue should be addressed. We undertook large parts of this debt because of a Europe-wide policy of avoiding imposing investor losses – if this policy is to be relaxed on the much more serious issue of sovereign debt then we must inform our colleagues that there will be significant losses imposed on bank bondholders.
One of the most ridiculous developments in recent months has been the lengths which the government has gone to claim credit for developments which it played no serious role in. The ESM announcement of a few weeks ago was a classic of the genre. On the Monday morning Minister Noonan said it didn’t relate to Ireland but was welcome, but by Tuesday the Taoiseach was hailing a great strategic victory.
The Taoiseach appears to be the only person left in Europe who believes that it was a wise decision to leave the debt and interest issue in the hands of the finance ministers. The hands-off approach failed miserably.
The momentum towards action which was evident in January and February disappeared.
Having spent months spinning the idea that Ireland had undertaken a diplomatic offensive the facts show that there has been no initiative whatsoever. During the election the Taoiseach went to Berlin to show how he would lead from the front, directly engaging with Europe’s leaders. In the 4 months since then he has incredibly failed to hold a single bi-lateral meeting with a Eurozone leader – and yesterday he said he has had no personal contacts with a Eurozone leader in the run-up to this emergency summit.
Just like his personal commitment to Roscommon is now denied, so too his Berlin pledge of personal diplomatic leadership is dismissed.
Given the amount of time the Taoiseach and his ministers have invested in attacking predecessors for supposedly failing to meet people, this complete absence of personal action is incredible. Perhaps if they had been less concerned with partisan attacks they would have been able to arrange for there to actually be a diplomatic initiative.
There will be a reduction in Ireland’s interest rate and there should be a move on bank debt. The Taoiseach will no doubt be unstinting in his praise of himself, but any progress will happen because of an overall decision which he and his ministers have played no serious role in influencing. His approach has been to sit on the subs bench but claim credit for the goals.
There is only three hours provided for the summit including lunch. Some are already trying to talk down the likely outcome, but the issues involved go beyond anything which can be spun for the sake of media headlines.
This is one of the most important summits in the history of the Union. It falls to the leaders to show that they can rise above the crisis and show that they will take any measure to help member states and restore confidence. The can must not be kicked down to road again.