This is a moment of unparalleled crisis for the European Union. It is in the edge of a financial collapse perhaps more severe than the 2008 crisis because of the number of countries involved. This is not about Greece. The growth and prosperity which Europe has secured over nearly sixty years was achieved because of the ways in which states opened up and became intertwined. This is a genuinely pan-European crisis – and much time has been wasted over the last three years in attempts to blame it on individual states.
Everyone who cares about the future of Europe wants the European Council to succeed in agreeing a comprehensive and credible plan to tackle the crisis. Unfortunately anyone who is following what is happening has to conclude that these summits have turned into a shambles.
It is two months since it was accepted that past measures weren’t working, yet what is emerging is another short-term fix which will cause longer-term damage. We are witnessing a destructive failure of leadership and the pursuit of clearly-flawed policies. There has been no attempt by the leaders to work collectively and they appear absolutely committed to a course of trying to stay within a policy framework which cannot work.
It may well be that what emerges is the best that could be agreed – but it is also likely to simply not be good enough.
As the Taoiseach likes to point out, we have been holding regular debates about European summits. As with so many of the pretend reforms of the last seven months, the adding of time has been accompanied by the removal of substance. Nothing illustrates this better than the treatment of Dáil Eireann this week and last.
Other parliaments have received detailed technical briefings about what is being negotiated. Governments throughout Europe have set out exactly what their positions are. In the case of the Bundestag, it has not only been presented with the detail of negotiations, it will today hold votes both in committee and in a full plenary session. In contrast, the Taoiseach has been asked on at least six occasions in the last fortnight to explain his policies and the proposals which are being considered. He has constantly refused to give any substantive detail.
The only serious information which this House has received about what was discussed on Sunday and what will be discussed tonight has come from the media and from members contacting people in other countries.
Look back at the reports of debates which we have held on previous summits and you will see the Taoiseach and Minister Creighton brushing aside the concerns of opposition deputies that agreements were insufficient. They have moved from the heavy amounts of petty partisanship seen in their early months to equally unfounded amounts of self-praise. The paraphrasing of official communiqués and widely known outcomes is all we have heard about negotiations. There has been absolutely no attempt to engage in the debate here or to be open about what our position at the Council is. The only absolutely clear policy is waiting for agreements which we can claim credit for. The Taoiseach’s claim during questions last week that Ireland had tabled Greece and bank capitalisation as agenda items was so brazen that even he hasn’t defended it.
What is known from the media and from contacts in other countries is that some elements of the overall package to be agreed in principle tonight will be positive. However, it will fall far short of providing the clear protection against contagion which is the only way to restore confidence in the Eurozone.
While the immediate measures on Greece and bank recapitalisation may be sufficient, the scale and terms of available funding for future needs are simply not enough. At the same time, the reform agenda is heading rapidly down a deadend by focusing on fiscal coordination rather than the fundamental issue of financial regulation.
There are those in this House who revel in populist attacks on Europe which are long on empathy but short on substance. I have no sympathy for their approach, which is exactly the same as was employed by members of the government when they were seeking votes.
There’s no easy route out of this crisis. The issues involved are highly complex and are therefore difficult to get right and easy to misrepresent. There are, however, simple tests which have to be met for any package to be credible. The foremost of these is that there must be enough funds readily-available to deal with current and possible needs.
Given that Italy alone requires €250 billion next year to refinance existing debt a genuinely contagion-proof fund would need to be a multiple of what was agreed in July. Just as importantly, the fund has to work in such a way as to avoid serious risks to the ratings of different countries and the EFSF itself.
The idea of leveraging the funding provided by member states through the ECB remains the only one which could be both large enough and contain risk. The absolute refusal to do this may mark the final and most grave mistake which leaders have made this year.
The argument of the guardians of ECB orthodoxy claim that such a leveraged fund would betray the founding principles of the Bank. In this they are right – what they ignore is that these founding principles have been exposed time and again as being completely flawed. The mandate and orthodoxies of the ECB have been at core of the cause and worsening of this crisis. It has acted with none of the creativity and effectiveness of other central banks. It has taken a hectoring and destructive approach to many issues and has presented as exceptional support measures which should be seen as core functions.
The very last thing which the leaders of Europe should be doing is trying to protect the current legal basis of the ECB. It has done nothing to merit this respect and it continues to be one of the chief obstacles in the way of a sustainable solution to this crisis. From its interest rate policies to its failure to provide security about its bond policies, the ECB has damaged everyone from home-owners to those dependent on state services.
The jerry-rigged amalgam of a new IMF special bailout fund and the use of the EFSF funds to provide bond insurance is almost designed to fail. It may take months to actually put in place and the number areas where it could unexpectedly fall are huge.
Europe needs a fund large enough to directly help countries who can’t afford market rates. If lenders know that there is a secure safety net then rates will fall and stay down. It has to be simple and clear – the risk of default is gone because the money is there.
It can be argued that what is to be agreed is the most that can be agreed, but let’s not fool ourselves that it is what Europe needs from its leaders.
If Greece were not a member of the Euro it would certainly have devalued its currency and it would probably have defaulted on sovereign debt. It has operated under serious constraints and Prime Minister Papandreou’s government has done an immense amount to address the core issue of the Greek state spending far more than it raises in taxes.
The need to write-down substantial amounts of its debt appears to be being addressed. It should not have taken over a year of the bailout programme before this was acknowledged, and the failure to do so clearly added to the escalation of the crisis this year.
Whatever is agreed about Greece in the coming days it should reflect the reality of the market expectation for a high write-off rather than the negotiating positions of the private sector interests.
There have been some voices raised that the €100 billion or so of recapitalisation funding which will be agreed may not be enough and that structure of the funding may be too inflexible. More detail needs to be provided before we can tell if this is so. What is certain is that the higher capital provisions which will be required are essential.
This recapitalisation process is the event which the ECB and other member states worked to avoid over the last three years. The last government was continually pushed to avoid any action which might cause a risk of contagion to banks in other countries.
It is a matter of public record confirmed by figures in many countries that we sought to write down substantial amounts of bank-related debt. This was blocked because honouring the debt was presented as a condition of financing support for both public services and the functioning of the banking system. Unilateral action was not taken because unilateral action was not possible.
With the recapitalisation of banks elsewhere the argument against burning bondholders is no longer valid in any way. The honouring of these debts is not required to protect the European financial system and it is not required to protect our ability to borrow.
The Taoiseach and Minister for Finance have used a dozen ways of refusing to answer the question of whether or not burning bondholders is a demand which they have placed on the table. They have refused to state exactly what we have sought and what our arguments have been. Most of the Cabinet thinks it’s a great laugh when they are challenged about their own words about ‘Not a Red Cent more’ for the banks.
Given that Sunday’s was the third summit in a row where the Taoiseach held no meetings or discussions in advance, his claim of yesterday to be negotiating appears barely credible. If matters continue as they are we will see a rerun of July, where the only contribution our leaders made to the outcome was waiting on the sidelines to claim credit for decisions entirely driven by others.
If Dáil Eireann were today allowed the freedom of the Bundestag to set limits to what be agreed there is no doubt whatsoever that a burning of bank bondholders would be passed.
Ireland played its part last year by not taking unilateral action against the bondholders. A pan-European approach to bank capital is now being agreed so Ireland has a right to demand the freedom to act. The failure of the Taoiseach to state this clearly suggests we may pick up some crumbs but there will be little else.
One of the many dispiriting parts of the half hour yesterday when the Taoiseach kept refusing to reply to questions he was being asked about the Summit was the short mention he made about what is being discussed concerning structural reform in the Union. All he mentioned was fiscal control – nothing about the far more important point of financial control.
The flaw at the heart of the Euro is not the absence of a single fiscal policy, it is the mandate of the ECB and the absence of proper control of the financial system.
No doubt there will be a form of words agreed concerning constructive engagement or urgent fiscal controls. These will be meaningless as they have no chance of being agreed or implemented any time in the near future. They are a waste of time and have nothing to do with the causes of this crisis.
In contrast, if the leaders were to propose a quick series of treaty changes aimed at broadening the mandate of the ECB and centralising strong financial regulation this would have every chance of being passed by parliaments and people alike.
Alone of the major economies in the world, the bulk of Europe has a Central Bank has a mandate which has as its sole concern the maintenance of low inflation. This exclusive mandate sits corrosively at the heart of the Banks culture and operations and it has inflicted misery on millions.
It must be broadened to include financial stability and economic growth. Let it take primary responsibility for financial regulation and require it to be concerned about employment when it takes its decisions. While the traditional anti-EU forces would no doubt generate a raft of conspiracy theories, these changes would pass an Irish referendum because the Irish people could see the sense and benefit of the changes. Elements of this can and should be done legislatively.
Any agenda which goes significantly beyond this will end in failure, probably sooner rather than later.
Cooperation Between States/Ireland’s position
When summits are convened but controlled by the agenda of a handful of countries they rarely generate positive outcomes. When they are convened without leaders actively engaging with each other they are always failures.
I have never seen such a lack of bilateral contact between leaders as has been seen in recent months. Hyping up casual and brief encounters may make sense in terms of media management but it does nothing for the quality of negotiations.
The Taoiseach and Minister Creighton have made references in recent days to praise for Ireland’s determined tackling of its problems. What’s been brazen even for them has been the attempt to claim that this has anything to do with measures introduced by them. All of the fiscal changes being praised happened because of a Budget the Taoiseach voted against and the bank plans he announced are indistinguishable from those prepared by Brian Lenihan and attacked by Fine Gael and Labour during their search for votes in February.
The strategy of attacking the policies but claiming the credit for their impact is transparent and it will rebound on you.
To be fair to Minister Creighton, she did go on the record in December as acknowledging the need to enact the Budget – and bravely announced she was only voting against it because she was assured it would pass anyway.
The Taoiseach is right when he says that Ireland is not Greece. A big part of this is that unlike the situation in Greece, our government chose to try to deal with the crisis rather than run to the country.
Positive signs have begun to return, albeit still far too slowly. Our economy retains key strengths and the potential to create employment.
Ireland needs a Europe where confidence has been restored. This can only happen if the twin fiscal and financial crises are tackled in a comprehensive and credible way.
There is no room for manoeuvre left. If leaders adopt a raft of jerry-rigged half-measures tonight they may well get a short-term bounce – just like the short-term bounces they got in March and July. However, what comes next may be a devastating blow to Europe, its economy and its people.
Ireland must raise its voice clearly for decisive action which is large enough and swecure enough to show that Europe is serious.