States with high deficit levels are at the mercy of the market – an EU fund would offer them protection
MY FATHER had a spring in his step on Sunday evening. An inquiry revealed that he and Arthur Scargill had been marching in Crossakiel. Of course. What else would an elderly Fine Gael councillor be doing on May Day only marching in a tiny Meath village with the most famously belligerent trade union leader in the British Isles? They were commemorating Jim Connell who wrote The Red Flag, a kind of anthem for trade unions.
He says Arthur is in great form. And sure why wouldn’t he be? It must be great to be a proper socialist and to witness the mess into which the free market marched us. The other lot who must be delighted with themselves are the Eurosceptics. They did warn that “Europe” was a political project that wilfully ignored economic realities.
In theory, membership of the monetary union is voluntary. In practice, even if the Greeks wanted to leave, it appears the consequences are so grave it’s not a realistic option.
In theory, members had to meet strict budgetary targets so the question of sovereign default would never threaten the euro’s standing as a hard currency. In practice, there is no mechanism to enforce the rules and here we are, one heavily indebted country writing a cheque to another. Once again, we’re out of choices because bad decisions were made earlier in the critical path.
Did we have too much union or not enough? Should we have created the euro at all or should we have insisted on fiscal integration too? Who let the Greeks in anyway without checking the books? (The French, I’m told). However, the conclusion I’m drawing is that while the euro is part of the problem and the Greeks should have reformed public spending years ago, the bailout is happening because of these amorphous speculators we label “the markets”. In this respect I think socialists like Scargill rather than the sceptics are entitled to an “I told you so” moment.
Greece’s crazy public spending days are over and even though the unions are kicking up, Papandreou is a respected and popular premier. The problem is not lack of action by the Greeks but the psychology of these wretched traders.
Even though the “austerity measures” have been announced, the traders refused to accept the bona fides of the government and increased the price of lending to Greece. It is the high interest rates on the loans that have raised the prospect of bankruptcy.
The bailout is us lending money to Greece at a cheaper interest rate. In that respect, we could say that “Europe” is working – the strong, or in our case, less weak, countries are aiding their allies. That’s my principal reason for favouring European integration – safety in numbers.
The bailout will solve Greece’s problem for the moment, but what’s worrying me is, what then? In what direction will the herd instinct of the “market” stampede? Spain? Portugal? Ireland? We’re making all the right noises too. We’ve had our “austerity measures” and are bracing ourselves for more. Jack O’Connor has recognised the gravity of the situation and has urged Siptu members to recognise the threat and accept the Croke Park deal.
But what if it’s not enough? What if the rates on our loans start to creep up and despite all the slashing and burning, our deficit keeps increasing to pay the interest? The flapping and floundering in Berlin for the past few months didn’t save Greece, so why should it save us? What scares me is that so much seems to depend on luck. The markets might leave us alone, or they might not.
For example, what if Brian Lenihan’s illness forces him to leave office in the next few months – will the markets like his replacement? If we have a general election, will they like the result? There are too many factors that seem outside our control and as a control freak, I’m not happy about that.
I wonder then if there is merit in seizing the initiative. Instead of sitting here, a little piggy in the middle, hoping that storm will pass us by, should we leverage Europe’s core strength, size, and stand up to the bullies in the market?
What I have in mind is a co-ordinated response by the high deficit countries. Rather than waiting to see if contagion emerges, should we act first?
Personally I’m attracted to default. Writing off chunks of debt sounds just fine to me, but more measured heads assure me that this is out of the question. We’d be defaulting on the French and German banks. That would be downright rude, and anyway they can’t afford another kicking.
Suggestions that the EU arrange a massive deficit busting fund for the high deficit countries seem more realistic. A trillion euro loan from the Americans, the Chinese, the IMF or whoever. If we could be assured of a stable interest rate for a few years, we could proceed to implement the right policies without the constant fear of a market attack. Right now all we’re doing is what the markets want anyway and keeping our fingers crossed that the dominos don’t fall.
If the point of Europe is protection, then why wait for the bullies to pick on us? Beat the markets by holding hands and securing loans outside it. That would put us back in control, and that’s always the best place to be.