The developments of the last few weeks in Greece and Italy together with the failure of EU leaders to restore confidence have led to a situation where the Euro is today in a critical state. All of the evidence is that there are at most a few weeks left to save the Euro. Market realities and political developments have confirmed that the only way the Euro will remain intact is if there is a significant change in the ECB’s policies.
Disturbingly, it has been reported that proposals are being discussed secretly which would have a dramatic and deeply damaging impact. Last night Reuters reported, in a widely sourced piece, that a proposal to create a reshaped and smaller Eurozone is being considered by Germany, France and some elements of the Commission. This new Eurozone is supposed to require deep coordination of all fiscal policies including taxation. A senior German official is quoted as saying that the Eurozone should be “pruned to make it stronger.”
While the French and German governments have issued denials of the report, comments by their leaders yesterday give support to the claims. President Sarkozy said that a ‘two-speed Europe’ is the “only model for the future”. Chancellor Merkel announced in Berlin that there is no distinction between domestic policy and collective policy within the Eurozone.
Irrespective of what the truth is, the situation today is that the deal agreed at the last summit has already failed and is unlikely to be implemented. The BRIC countries whose loans are required aren’t interested, the amount isn’t enough and market confidence has fallen further.
There is a duty for people who believe in the European way forward to make their voices heard. We must demand that action be taken on the real causes of the crisis, not this deeply damaging selective agenda.
With the future of the currency on the line, with major Treaty changes due to be agreed in principle within weeks and with enormous economic implications for us and the whole of Europe, Ireland needs to start speaking up.
I have therefore written today to the Taoiseach setting out a short list of priorities which Ireland needs to immediately table and asking him to convene a meeting of political leaders to agree a cross-party motion which could be adopted immediately by the Oireachtas as his negotiating mandate.
There are three specific measures which could immediately restore confidence in the Eurozone sovereign debt market:
- ECB commitment to ongoing support for sovereign debt.
- A leveraging of the EFSF from within the resources of the Eurozone.
- Limited changes to EU law focused on the financial system and the ECB.
ECB Bond Buying
The reluctant and inconsistent commitment of the ECB to buying sovereign bonds is the root cause of the contagion spreading across Europe at the moment. By continually saying that their intervention is only short-term the ECB’s buying is encouraging the private sector to withdraw from the market, not giving them the confidence to remain.
In area after area the ECB’s inflexibility and rigid adherence to 40 year-old orthodoxies is destroying the Eurozone. Countries with worse debt problems are experiencing little or none of these pressures and the reason is that they have more flexible central banks.
The Treaties do not allow member states to require the ECB to take action, but member states are entitled to call for action. A formal proposal calling on the ECB to give a commitment to embracing the role of lender of last resort must be tabled.
Leveraging Bailout Funds
China and other countries have indicated that they will not be supplying the funding required to put in place a bailout fund big enough to deal with the crisis. Their position, quite rightly, is that the Eurozone has enough reserves to deal with the crisis itself.
Legal proposals should immediately be tabled to allow the existing funds to be leveraged.
Changing EU Law
The reform agenda currently being developed will do nothing to address the underlying causes of the crisis and is undermining confidence.
A series of reform proposals should be formally tabled which focus on financial and monetary reform alone.
If these measures can be brought together in a Dáil motion which attracts cross-party support the Government will be in a position to start getting involved in the negotiations which are already underway.
Since March I have been trying to push the Taoiseach on this issue, raising it with him nearly every day in the Dáil. I have been pushing him to recognise the extreme urgency of the situation. As confirmed yet again this week on his record in the Dáil, in eight months the Taoiseach has not held a single substantive meeting with a Eurozone leader. Before the recent summits Ireland submitted no proposals and placed no item on the agenda. The Taoiseach did not even hold one phone call with a Eurozone leader. Ireland agreed the appointment of the new ECB President without asking him any questions. In the seven months before last week’s bond repayment the Taoiseach did not raise it in any way with the ECB. He silently agreed to a joint communiqué at the last summit which states that coordinating tax policies is central to solving Europe’s problems. Ireland’s negotiations went from being highly active before February to effectively non-existent now. The only consistent policy has been waiting to see what emerges from other negotiations and finding things to try to claim credit for.
What is being discussed is central to the future of this country. The government’s policy of sitting on the sidelines is achieving nothing and helping a situation where Europe’s leaders are making the crisis worse everyday.