Bailout worth nought without political reform

Tue, Nov 16, 2010, 00:00

The key issue regarding the financial rescue of this State is not whether it will happen, but on what terms, writes FINTAN O'TOOLE

THE BAILING out of Ireland, whenever it happens, is not just a turning point in our history. It is also a defining moment for the European Union itself.

The way the EU handles this delinquent little State will be the great test of whether the EU is still a social and political project, built on the legacy of the second World War, or whether it is just another vehicle for the narrow interests of the rich.

Whatever the Government says (and who can believe anything from that source?), the key question in relation to the bailout is not whether it will happen, but on what terms. What is the interest rate? How long does Ireland have to pay back the money and reach the mythical target of a 3 per cent budget deficit?

These may look like technical fiscal questions. They are in fact political and moral ones. They cut to the heart of the European project. The EU exists because of a lesson learned in the most horrific way, through the rise of barbarism and the most destructive conflict in world history. That lesson is simply stated: the national interest of every European country is bound up with the wellbeing of every other European country. Or to put it even more simply, it is in no one’s interest to see a neighbour implode.

The country that knows this best is the one that now holds our fate in its hands: Germany. The Germans had two sharply contrasting experiences of what happens after you behave disgracefully.

At the end of the first World War, the decision was that they should be punished and taught a lesson. Everybody knows the result: a demented and dangerous Germany. So, at the end of the second World War, when Germany had behaved even more hideously, the temptation was to punish it even more severely. The initial impulse was to hammer Germany into the ground – a perfectly justifiable response. But memory and wisdom prevailed. Germany was, instead, helped back on its feet.

We’re too fragile to be smacked. We don’t need to be punished – we need to be helped. And Germany itself isn’t entirely without sin. The crisis is undoubtedly the fault of our own indigenous idiocies. But it was German banks who were the most enthusiastic lenders to us in the boom years. And Angela Merkel could have saved us a lot of trouble if she had said in September 2008 what she said last week about bondholders sharing the pain. Germany’s discovery of the folly of blanket bank rescues comes just a little late for us.

The basic question, though, goes far beyond the specifics of blame and into the essential rationale for the EU itself.

Its bedrock principles of enlightened self-interest, solidarity, equality and justice, are at stake. Punishing the Irish people – and especially the most vulnerable, who will be hardest hit by the destruction of public services – would be economically stupid. But it would also undermine the EU’s claims to have moral, rather than just pragmatic, foundations.

Equally important, however, is the other side to the deal. There is no point in us being bailed out if the only effect is to keep in place the systems and political culture that created the mess. The EU could wipe all our debts right now and we’d end up in another crisis in 10 years. To put it brutally, we are incapable of governing ourselves with our current institutions and attitudes.

So the other side of a fair and rational bailout, with low interest rates and a 10-year time frame, is a revolution in our political institutions, public morality and systems of governance.

A German taxpayer would be right to conclude that if you rescue people who have learned nothing from the consequences of their own actions, they will assume they can get away with it over and over again.

So this is the other question the EU has to ask: are we bailing out a country, or are we bailing out a clapped-out system of cronyism, ineptitude and machine politics?

If it’s the former, the EU will have passed a key test. If it’s the latter, the Germans would be wise to keep their money in their pockets.

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