Iberian debt crisis early next year likely to herald the collapse of the Euro

As the dust settles on the terms set out for Ireland’s bailout agreement, the public continue to balk and gasp at the sheer size and scale of Ireland’s indebtedness. Doubts about its ability to carry burden of it remain high.

Notwithstanding this, out of all the PIIGS nations, Ireland is in a much stronger position to gain the economic strength required to withstand the hardship of re-paying the debt. The jungle where the Celtic Tiger thrived may have been devastated by a forest fire but at least this cat is still alive. Very soon, Ireland will reclaim its status as a net exporter. The jungle will renew itself.  Ireland can become a rich country again.

The Irish people, unlikely to expect any respite from the crisis, in the short term, are, understandably, now turning their anger on their Government. Meanwhile, the rest of the World will shift its attention towards the next hot spot for Euro turbulence – Portugal.

Unlike Ireland, Portugal’s problems are not related to a banking crisis based upon a property boom and crash. Portugal’s problems are structural. It is suffering precisely because it is in the Euro zone. In the past decade, Portugal’s economy has undergone very little growth. Its industry has become less efficient and competitive. Unemployment has risen above 10 per cent.

In 2009, Portugal’s budget deficit reached 9.4% of its Gross Domestic Product (6.4% higher than allowed under Euro zone rules). Its National debt is 75% of GDP (15% above the allowed limit). Portugal plans to reduce its budget deficit this year to 7.3 per cent, and to 4.3 percent in 2011. Furthermore, it plans to raise VAT from 21 to 23 percent and increase Corporation tax by 2.5%.

Portugal’s planned capital projects, such as the new airport and the construction of high-speed rail lines have been suspended. State-owned companies, including energy utilities and banks are either to be fully or partly privatized. These measures will bring approximately €6 billion into the Portugal’s coffers. Salaries for its civil service are to be cut by 5 percent.

Despite the austerity, Portugal remains in recession. Growth forecasts for next year are only 0.2%. In order to re-finance its old debts, Portugal needs to raise €15 billion by next spring and a further €40 next year. With the bond markets in turbulence, Portugal is finding it extremely difficult, if not impossible, to obtain inexpensive credit. The markets are extremely unlikely to feel confident about Portugal’s ability to resolve its problems. A bailout for Portugal is all but imminent.

If Portugal was the only other problem country left for Europe, Angel Merkel would now be relegating her worries about the Euro beneath her forthcoming Christmas shopping dilemmas. The current fear now is that once Portugal is bailed out, the contagion will spread to one of the Euro-zone’s larger economies, such as Spain or Italy. Out of those two economies, it is Spain, whose alarm bells are bellowing.

At first sight, Spain does not yet look like a problem Nation. Its National debt is only 53% of GDP – still under the Euro zone’s permitted limit. Like Ireland, Spain is suffering from the after-effects of a burst property price bubble. Hundreds of thousands of Spaniards have lost their homes. Spain’s mortgage lending institutions are now saddled with €180 billion of bad debt. Like Portugal, Spain’s economy has been made weaker as a result of being in the Euro zone. The recession in the construction industry has left 1.2 million without jobs. Unemployment is at 20%. Youth unemployment is at 40%.

Spain’s ruling socialist Government has been tardy at tackling its mounting debt problems. As a result of pressure from the IMF and the EU, it has begun to tackle them since the spring of this year. This Summer VAT rate was increased by 2%. This failed to generate revenue because Spaniards cut back on consumption. This also seems to have delayed the end of the recession.

During the next three years, the Spanish Government hopes to save €50 billion through drastic cuts. A further €15 billion will be slashed from this year’s and next year’s budget. Measures designed to achieve this include cutting civil servants’ salaries and slashing subsidies. The Government target is to reduce its budget deficit from 11.2 percent of GDP to less than 3 percent by 2013.

Next year, Spain must raise €65 billion from Capital markets in order to re-finance its debts. Is it realistic to expect the bond markets to supply that amount of money at manageable levels of interest?

If it is not, then is a bailout of Spain a political likelihood?

The political and financial commitment required by Germany would be enormous. Already, German Banks are owed €134 billion by Spanish Banks and companies. Portugal, Greece and Ireland aggregated together represent 7% of Europe’s economy. Spain is Europe’s fourth largest Euro zone economy. A bailout for Spain could cost up to €700 billion. That would “clean out” what remains of the EU rescue fund. Furthermore, a bailout of Spain does not guarantee that euro turbulence would be brought to an end.

It is hard to see how Spain will not require a bailout. It is also hard to see a bailout for Spain being accepted by the Germans. Can anything else be done to save the Euro?

Timothy Garton Ash, writing in the Guardian last week, argues that it is possible, but only if Germany commits itself to a new political and financial structure in place to deal with Europe’s sovereign debt and economic problems very soon.  The next few weeks appear to be crucial.  Frau Merkel, if she is getting to grips with this crisis, is unlikely to have Christmas shopping uppermost in her mind.

No satisfactory rationale emerges from the Government on 7 billion loan to Ireland

So Britain is making a loan to Ireland of €7 billion, just like that. 

We are told that it is in the National interest for Britain to do this.  George Osborne has said that Ireland is a “friend in need.”  It has been emphasised that Ireland is the only nation with a land Border with the UK, that Ireland’s own banks have 40% of the banking in Northern Ireland, that Ireland is Britain’s largest export market and that British Banks are owed a very large amount of money by Ireland. Yes, but….

…was that money not available from European or IMF sources in any event?

None of this properly explains why Britain loaned the money. What would have been the position if Britain had not loaned the money?

What “bad happening” to the UK has been prevented by lending the money?

What good has the Government achieved which could not have been achieved without lending the money?

When you consider all that Mr. Osborne and Mr. Cameron have said, we have not actually been told anything.

The political problem for the Government is that, whatever the answers to these questions, they can not be kept a secret for very long.   Even if they could keep it a secret, the media will fill the gaps in their knowledge with accusations.  Already, Simon Heffer of the Daily Telegraph has written a very provocative piece, accusing the Government of indulgence.

“…we must help the Irish because of the Coalition’s commitment to the European dream,” accuses Heffer.

So please, Messrs. Osborne and Cameron, let us have the full facts. Let’s have it out now.

Ireland “A society that disappeared up its own backside”

Whilst we witness the awful events unfold relating to Ireland’s economic difficulties, it is vitally important, for democracy in the future, that the mass of the voting population acquires a basic understanding of the mechanics of this disaster.

Following on from my previous post on the warnings by Mrs. Thatcher, I was about to write an article, using the Republic of Ireland as an example, depicting the link between National Sovereignty, democracy, currency and the ultimate prosperity of a Nation. Then yesterday, I read Newton Emerson’s excellent article in the Sunday Times. When I read it, it made me wonder if it was possible to solve regional inequality by setting up different regional currencies within a sovereign state. Then I thought the better of it. The best that a Nation can do about its regional inequalities is to have regional development plans to address it. 

In the United Kingdom, it was the Conservative Party which led the way with regeneration policies for inner urban areas in the 1980s. Today, it has a long-term regional development policy for Northern Ireland. At the heart of that policy is the proposal to bring down the rate of Corporation Tax. Will Northern Ireland’s politicians grasp this nettle? We shall see.

As there is no free link to the Times website, I have reproduced the full text of Emerson’s article below in coloured font:

“The prospect of Northern Ireland’s corporation tax going down, just as the republic’s may be forced up, has huge implications for the relative competitiveness.  There are problems and opportunities galore, and a large number of individuals will be personally affected, but the plain fact is that with three quarters of all economic activity directly due to public spending, and welfare not developed to Stormont, Northern Ireland looks to British budgets rather than Irish business for its economic fate.  And the dole cheque is still expected to arrive.

That leaves people free to discuss the constitutional ramifications – always the preferred northern pastime.  “Could the republic actually afford unity, now or ever?” mused one Belfast Telegraph headline.  ‘Partition hampers the economy,’ Sinn Fein is increasingly wont to claim.  Talk of a British bailout has raised the usual eyebrows.

It is all tired, predictable nonsense.  There is no correlation between the strength of republican sentiment and the strength of the southern economy.  The financial implications of Irish unity can be argued either way, and no financial argument persuades either side.  Nationality is above) or perhaps beneath) economics.

There is one grown-up discussion on economic sovereignty that can be shared across the border.  Northern Ireland is a text-book case of the problems of a currency union.  Indeed, it is such a glaring illustration that it is almost rude of the south to have ignored it before joining the euro.  Like most big countries, the UK suffers from having one currency across the disparate regions, without an exchange rate, varying productivity can be reflected only by prices and wages, which are rarely flexible enough to do the job.  So the less productive regions end up with higher unemployment, while the more productive regions end up with higher taxes.

This is the internal bargain all nations strike, but it is rare to find such a clear example as Northern Ireland.  Because of its huge public sector, whose wages are often agreed nationally, Northern Ireland has too many people expecting British pay in British pounds with no allowance for the geographical consequences of their Irish location.

Many public-sector workers get a London weighting, but there is no equivalent Belfast lightening.  Instead, throughout Northern Ireland, there is persistent long-term unemployment, the UK’s highest level of economic inactivity, and a subsidy of about £10 billion a year, more than the one-off bailout London is considering for the republic.

As well as contributing to these problems, currency union denies even a region as developed as Northern Ireland the tools to solve them.  Stormont is unable to print money or set interest rates, but it also has little scope to vary taxes because of the legal, political and practical problems of having different fiscal regimes under the same currency.  The possibility of lowering Northern Ireland’s corporation tax has been debated for years, but it will still require London’s permission.  Even then, there is no guarantee of getting it past the European commission.

When such policies are discussed, Stormont’s status as a glorified county council becomes apparent.  This is precisely the status Dail Eireann acquired when Ireland joined the euro.  It may have taken a crisis to make it apparent but the surrender of economic sovereignty was complete from day one.

Taxes and public sector wages have not yet been harmonised across the continent, but convergence is the inexorable logic of the euro, whether it is hastened by a bailout or not.  If Ireland is rescued, it will be rescued as a region, and compensated by subsidy for being a region.  It will be just like Northern Ireland.

However, in many fundamental respects, the republic’s position within the eurozone is worse than the north’s within the UK.  The republic is a smaller part of its currency area by GDP and population.  It is less connected to the eurozone’s centre than Northern Ireland is to the Southeast of England.  The eurozone is an expanse of 16 countries encompassing far more economic variation than is found within the UK, which makes a one-size-fits-all monetary policy that is much less likely to fit any one in particular.  Finally, Northern Ireland still has the relative flexibility of sterling, whatever its imperfections.

Since the recession began, every British employee has taken a 25% pay cut compared with the UK’s main trading partners.   Few even noticed it happening.  In the republic, with no exchange rate between most of its trading partners and the euro-sterling rate going the wrong way, public and private employers have had to cut salaries directly – a process that is slow, demoralising and politically toxic.

Perhaps it is a bit much to expect those in the south to look north for any kind of lesson, but it is surprising that they do not recall their own quite recent example.  Between 1979, when it uncoupled the Irish pound from Sterling, and 1999, when it joined the euro, the republic had a freely floating currency.

It was not meant to float quite as freely as it did – the ill-fated European Exchange Rate Mechanism was supposed to keep it within bounds.  It swung all over the place, going considerably below and above sterling and depreciating significantly against the deutschmark.

This helped Ireland’s competitiveness when foundations for its growth were laid down.  It also imposed enough financial discipline on Irish governments to stop them bankrupting the country.  Floating currencies start to sing, rather quickly and obviously, under the weight of excessive spending and borrowing.  It was enough to rein in even Charles Haughey.

It is one of the great ironies of the euro that it is promoted as a means of enforcing financial discipline.  Instead, it has become a means of running up enormous debt without the symptoms showing until it is too late.   The republic’s history proves it, and also disproves the common claim that without the euro it would have ended up like Iceland.  This puts the cart before the horse.  Without the euro, the republic would never have got into as much trouble as Iceland in the first place.

Still, there they are – or “we are where we are,“ as Brian Cowen, the Taoiseach, so eloquently put it – with no visible route back to a currency of their own.  Recessions and depressions come and go, but Ireland’s financial sovereignty is gone forever.

Margaret Thatcher was absolutely right

It is 20 years since Margaret Thatcher was removed from power in a leadership challenge instigated by Michael Heseltine and others.  It was a time when the Conservatives lost their nerve, having seen opinion poll ratings fall.  The issue which divided Conservatives, at the time, was the proposed single European currency.  Her successor, John Major was unable to unite the two wings of the Conservative Party despite winning the 1992 election.  The combined effect of the EMS crisis of 1992 and the splits in the Conservative Party over Europe led to a crushing defeat by New Labour in the 1997 election. 

Writing in the Daily Telegraph
Peter Oborne revisits the warnings that Margaret gave during her term of office and which were recorded in her autobiography, first published in 1993. 

“Today, Margaret Thatcher’s autobiography, first published in 1993, reads like a prophecy. It shows how deeply and with what extraordinary wisdom she had examined Delors’ proposals for the single currency. Her overriding objection was not ill-considered or xenophobic, as subsequent critics have repeatedly claimed.”

“They were economic. Right back in 1990, Mrs Thatcher foresaw with painful clarity the devastation it was bound to cause. Her autobiography records how she warned John Major, her euro-friendly chancellor of the exchequer, that the single currency could not accommodate both industrial powerhouses such as Germany and smaller countries such as Greece. Germany, forecast Thatcher, would be phobic about inflation, while the euro would prove fatal to the poorer countries because it would “devastate their inefficient economies

“It is as if, all those years ago, the British prime minister possessed a crystal ball that enabled her to foresee the catastrophic events of the past year or so in Ireland, Greece and Portugal. Indeed, it is one of the tragedies of European history that the world chose not to believe her. President Mitterrand of France and Chancellor Kohl of Germany dismissed her words of caution. And when Mrs Thatcher was driven from

office in 1990, a crucial voice was lost, and a new consensus started to form in Britain in favour of the euro.”

Oborne also pays tribute to William Hague and Ian Duncan Smith, who maintained support for Mrs. Thatcher’s policy during a period of intense unpopularity for the Conservatives.

Margaret Thatcher was hardly a popular figure in the Republic of Ireland.  In the 1980s, she was seen as an obstacle to Ireland’s interests.  I wonder how many now wished that their politicians had paid more heed to her warnings.

What if Gladstone’s bill on Home Rule had passed into law?

Simon Heffer of the Daily Telegraph has written an article to celebrate the forthcoming 200^th anniversary of the birth of William Gladstone, four times elected the prime minister of the United Kingdom and perhaps rightly credited as the greatest prime minister of the Victorian era.

A small part of his article focuses on his vision relating to Ireland.   Heffer says this about Gladstone’s attempt to introduce Home Rule to Ireland. 

“Had home rule been granted at either attempt by him, in 1886 or 1893, there would have been unrest: but would an independent Ireland under the Crown have caused Britain such trouble over the following 120 years as was otherwise the case? Of course it would not.”

This, of course, is one of the biggest “what ifs” in Irish History and since we are near to Christmas, it is time to have a bit of fun.  At the end of this post, historians (amateur and professional alike) are asked two questions about what would have become of Ireland if one of those bills had passed into law.

We have the following clues

(1)  The Orange Order.  It had already been established since 1795 and was vehemently opposed to Home Rule. 

(2)  There was a small Irish Unionist Party, founded in 1891, originally led by Colonel Edward James Saunderson.  The forerunner to the Ulster Unionist Party (the Ulster Unionist Council) did not exist until 1905.  Further strengthening of Unionism later took place in 1912 with the formation of the Ulster Volunteer Force and the signing of the Ulster Covenant. 

(3)  Sinn Fein was formed under Arthur Griffith in 1905

(4)  The Irish Republican Brotherhood (IRB) was in existence at the time of the passing of the two bills.

At the time of the passing of the second Home Rule Bill in 1893, there was much anticipation in Ireland.  Writing for the BBC, Dr James McConnel of the Ulster University said.

“As one English journalist visiting Ireland in 1893 (the year of the second Home Rule Bill) recorded: ‘self-government was the only topic of conversation in hotels, railway carriages, tramcars, and on the steps of the temples, at the corners of the streets, in the music halls.’

Simon Heffer might be regarded as being slightly inaccurate when he says “an Independent Ireland under the Crown.”  Home rule would have been a form of devolution.  Reserved matters would have included Defence and Foreign policy.  The Royal Irish Constabulary was to be devolved at a later stage (echos of today’s position in Northern Ireland)

The following questions are posed:

(a)   Is Simon Heffer’s conclusion correct? 

(b)  Would Ireland or any part of it have drifted towards being a Republic if one of the two Home Rule bills passed into law?

(c)   Would partition have taken place through another route?

The GAA, Nationalist Identity and Sectarianism

In recent times, the GAA has been compared with the Orange Order as being its Republican equivalent.  At the end of the continuum of sectarian bigotry where criminality festers, a GAA clubhouse is just as likely to be damaged as an Orange Hall. 

Just over a year ago, Margaret Ritchie MLA and Minister for Social Development set the cat amongst the pigeons when she attended a GAA conference in Belfast.  At the conference, she addressed sectarian attacks on Orange halls and GAA venues.  Her remarks on that subject were reported in the press and went down badly with members of the Orange Order.  In response, they handed her a letter of protest. 

On December 3, 2008, the Belfast Telegraph reported as follows:

 “The minister condemned all such attacks, but reportedly said that the GAA and Orange Order could not be described as reflections of each other, insisting that the GAA had reached outside its nationalist heartland towards other communities.

She was quoted as saying: “While the loyal orders have some progressive people around who wish to move them forward to a better place, they remain unlike the GAA, sectional and sectarian and deeply divisive in our community.”

At first sight, Margaret Ritchie’s viewpoint is not an unreasonable one to arrive at when one compares the big differences between the two organisations. If one organisation is about religion and the other about sport, they cannot possibly be opposites.  Furthermore, there is no rule against a person from any particular religion from joining the GAA.  In the case of the Orange Order, Catholics are excluded from membership. 

I differ with Margaret Ritchie’s remarks in two respects.  It is wrong to say or imply that the GAA does not have any connection with sectarianism.  I also take issue with her comment that the GAA had reached outside its heartland towards other communities.  The reality is that their success in this area has not been more than minimal and whilst it is fair to say that some Protestants have been involved in Gaelic sports, the GAA certainly has certainly not integrated with the Unionist Community.  At this point, I would like to discuss another sport played widely in Ireland which does integrate Nationalists and Unionists – Rugby Union.

Lord Maginnis is a well known member of the UUP.  He is my former MP.  He identifies himself as British.  Many years ago, Maginnis also used to call himself Irish.  That he felt the need to suppress the Irish part of his identity was part of the tragedy of the troubles.  It was a reaction not simply to terrorism but to part of the Republican campaign which was to squeeze out and eliminate the British identity from Northern Ireland.  Yet Ken Maginnis is still an Irishman.  He is also a fan of rugby and devotedly follows the Irish team.

The Irish international rugby team represents the 32 Counties of Ireland internationally.  It is not the only sport which represents both parts of Ireland but certainly the only major one in Ireland.  Before the match, the National Anthem Amhrán na bhFiann is played.  Though it was tolerated by them, Irish Unionists did feel somewhat excluded by its inclusion.  In 1995, the IRFU commissioned Phil Coulter to write a politically neutral anthem for the Irish Rugby team.  The song, Ireland’s call has been proudly adopted by all Irishmen.  By that action, the IRFU effectively nailed any identity problem that it might have had with its National team.  Ireland’s Call has now been adopted by the Irish Hockey, Cricket, Rugby League and A1GP international teams.

Unlike the IRFU, the GAA’s identity is tied to Nationalism.  This is not surprising given its history.  At the time of its inception, it formed part of a wider movement of cultural Irish Nationalism which now forms part of the history of the birth of the 26 county Irish State.

Throughout its existence, the GAA has nurtured its Nationalist identity through pre-match rites, its rules and its literature.  Rule 15 requires that the flag of the Republic of Ireland is flown and that Amhrán na bhFiann is played at all matches.  It was also an isolationist institution until relatively recently.  At one time, a player of Gaelic sports was banned from playing other sports.  Some of its past rules such as the ban on British security forces playing GAA games were undoubtedly sectarian. 

Unofficially, the GAA has been linked to Republican terrorism.  In the past, there have been allegations that it funded the IRA.  It is also alleged that some clubs continue to glorify IRA men. 

I would certainly not wish to brand all GAA supporters as IRA supporters or sympathisers.  Many of the people I know who are also GAA members would have nothing to do with the IRA or its memory but it is a fact that every now and then, some members of the GAA organisation make overt gestures of sympathy for the IRA in the name of that organisation. 

Rule 7 of the GAA rules strictly forbids sectarianism. Unfortunately, the rule on its own is impotent.  The GAA has failed to prevent a culture of sectarianism from having developed in its own following, hence the appalling case of Darren Graham, a protestant who, in 2007, felt compelled to give up playing GAA sports.  He later returned to his club after receiving an apology from the Fermanagh GAA Board. 

For all of the above reasons, it is hardly surprising that the GAA is perceived by many as being a sectarian organisation and one which the Unionist Community is generally alienated from.  

The GAA carries with it the nurturing of the ancient Irish sports, such as hurling.  These sports are a part of Irish heritage.  Elsewhere on this website, I have argued that the Irish Language should not be allowed to be hijacked by Republicanism.  That argument extends to all other parts of Irish heritage.   No part of Irish heritage should be the preserve of a single community. 

So can the GAA move forward from here?

In a sense, only they can answer that.  It all depends upon what they want from their longer term future.  Do they wish to enhance the interest in their sport?  Do they wish to adopt a modern sporting ethos by removing politics from its aims and objects?  Do they wish to improve community relations in Northern Ireland and combat sectarianism?  I believe that they can achieve all of those things by doing one thing.  That is that they follow the Irish Rugby Football Union model and take measures to change their identity to a cross-community one.  For example, could they eliminate rule 15? 

I am not the first person to make this argument.  Ed Curran of the Belfast Telegraph has reached a similar view about the GAA.  Whether anybody inside the GAA will give these issues serious thought is another matter.  We can but hope that matters will change for the better.

Ireland win the Grand Slam!

This is my third blog today.  That is a record but what a day for records.  I could not resist recording this wonderful piece of sporting history. 

What nailbiting drama, but heh, I am not a sports writer and if I did a decent piece, you would have to wait long into tomorrow because I am likely to have a hangover!

For the time being, I will say congratulations to the Ireland team, including their coaches and staff. 

I am now off to celebrate.  Cheers and Sláinte!

A saint that straddles the sectarian divide

Firstly, if you are visiting this site on 17^th March may I wish you, very warmly, a happy St. Patrick’s day.

Most Irish people are familiar with the story about how St. Patrick brought Christianity to the people of ancient Ireland.  His legacy though is much more special and multi-dimensional than that.  It is not merely the fact that, unlike other patron saints of other nations, he has an historical connection with this country.

Part of St. Patrick’s uniqueness in a sectarian-ridden country like Northern Ireland is that his legacy is shared by churches of all religions in Ireland.  He is a non-sectarian symbol and that makes him extra special.  In case you are not already aware, promoting normal politics in Northern Ireland is a subject very close to my heart.  That is why I decided to adapt the flag of St. Patrick as part of my logo for this Blog site.

It is my hope that we as a party can help to break the shackles of institutional sectarianism in politics.  One thing we can do to help the process is to break toxic political symbols and replace them with those that can represent both communities like St. Patrick does.  How about using St. Patrick’s cross to represent Northern Ireland?

I believe that Northern Ireland would benefit from a new flag.  The existing flag has unfortunately come to be regarded as loyalist flag.  I do believe that Northern Ireland would benefit from a new flag which all communities can share their identity with.  I am not actually the first person to suggest that St. Patrick’s cross should be incorporated into a new flag.  Some useful research has already been carried out by the Alliance Party.  The document “the Case for a new flag for Northern Ireland” is definitely worth a read.