Relief in Brussels with crisis becalmed
Ireland’s EU position stronger, but big risks remain
If the eurozone’s banking union plan is, at best, half baked, the ongoing disunion of the euro area banking system is devastating for the real economy.
Is the existential crisis of the euro over and how is Ireland viewed from the continent? Time spent in Brussels this week was illuminating in considering both questions.
On Wednesday at the European Commission’s flagship outreach event – the annual Brussels Economic Forum – there was a palpable sense of relief among eurocrats, central bankers, policy types and others. Many noted how, as the last forum was held, the euro project appeared close to disintegration.
Since then, financial market panic has abated. While that has caused complacency to set in among Europe’s political class, non-politicians are in near universal agreement that the current period of calm is not being taken full advantage of to address the crisis. Poland’s central banker in chief, Marek Belka, was topical. He said with bluntness uncharacteristic for one in his profession that there was little enthusiasm in the bloc for a banking union.
Accentuating the positive
If the eurozone’s banking union plan is, at best, half baked, the ongoing disunion of the euro area banking system is devastating for the real economy. The fragmentation of the financial system has resulted in a credit crunch in the periphery. Not only are loans much harder to obtain, but interest rates charged to small and medium-sized companies in Ireland and the Mediterranean have shot up. One noted Keynsian said privately that the credit crunch was more to blame for recession in the Mediterranean than austerity.
Although helping companies get access to credit is urgent, signs that it will happen are not auspicious. The commission will make some proposals at next week’s leaders’ summit. But even if such efforts prove successful, the money involved is insignificant in the broader scheme of things. Real action would require aggressively unorthodox ECB intervention, but that is a long way off for the usual reason that no agreement exists among national representatives.
On perceptions of the Irish economy’s progress, it was instructive that the question this columnist was asked most frequently was whether Ireland is really making as much headway as is being claimed (for what it’s worth, my answer was that although progress has been made, the official narrative overstates it while understating the risks of reversal).
But if governments’ spinning domestically always needs countering, it is a diplomatic imperative to talk up achievements on the international stage. To see why there are only upsides to accentuating the positive abroad, consider the good and the bad outcomes facing this State and its economy over the medium term.