After Greece: Ireland's next move
Europe moved this week to grant a new swathe of financial concessions to Greece in a renewed effort to prevent the country falling into an abyss. Only days before another harsh budget in Dublin, the development underlined the Irish Government’s failure to prise a debt-relief deal from its sponsors in the euro zone.
Although economic conditions in Greece are far worse than in Ireland, there are questions about whether the new arrangement for Athens should prompt Taoiseach Enda Kenny and Minister for Finance Michael Noonan to intensify their campaign.
“I would, given the recent Greek deal, wait for a while to see whether the EU/euro zone responds; [there is] no point pushing hard now, having not done it before,” says Kiron Sarkar, a former Rothschild investment banker who writes a financial newsletter.
“However, if by January there is little movement, I would push far more aggressively. The EU/euro zone needs Ireland, in particular, as it is its only success story. In future it needs to offer incentives, rather than just penalties, to those that perform, [as that] will encourage a better response from the relevant country.”
In such arguments there’s little to gain by always being nice. Better to get down and dirty than to be teacher’s unerring pet, or so the argument goes. Kenny has extracted a vague political promise, but little more, from the German chancellor, Angela Merkel, that something will be done in recognition of Ireland’s “special” situation.
Still, the Taoiseach is no pushover. Last year he doggedly resisted a Franco-German assault on Ireland’s corporate-tax regime. Although the interest rate he received in the end will save a grand total of €12 billion, this was granted in a package to quell a market onslaught on Italy and Spain. In June he refused to sign up to new arrangements for Spain until a specific reference to Ireland was inserted. Notably, however, the value of that “breakthrough” faded fast.
The prospect of direct capital infusions from the European Stability Mechanism fund into the likes of AIB and Bank of Ireland is on hold. The focus now is on a deal with the European Central Bank to recast the Anglo Irish Bank promissory-note scheme. More than a year into the talks, however, there is still no agreement.
Would it ever work to get gritty? After all, straight talk won’t necessarily lead to a wilful act of disruption and might demonstrate an urgency to settle matters quickly. But this remains tricky. “You’ve got to think long and hard about upping the ante,” says a European official who knows the intricate ways of the Brussels machine. “You go for a showdown only if you have a reasonable expectation that it will yield results. The risk of hyping things up is that you may get a rather more categorical No than you want.”
Warning signals are already emerging. Even as the Government explores whether any of the new Greek concessions might be made available to it, the Dutch prime minister, Mark Rutte, has declared his opposition. This matches scepticism in Germany about Ireland’s need for additional aid.
More radical still would be a repudiation of a €3.1 billion Anglo repayment due next March, which would involve a damaging default on a sovereign debt. The same goes for any unilateral shunning of any other debt, something the ECB repeatedly refused to countenance when it insisted the Government repay senior bank bondholders in full.