Just when you thought it couldn’t get any worse, along comes a new piece of EU “solidarity” that can only make our bad situation even worse.
The Tánaiste, Éamon Gilmore, has admitted that Ireland will be required to pay approximately €9.87 billion towards the new permanent EU “bail-out” fund, the “European Stability Mechanism.” His admission in the Dáil on 13 April was in reply to a question from the independent deputy and People’s Movement patron Thomas Pringle.
To establish this body it is proposed that the Lisbon Treaty be amended by the insertion of a new section in Article 136 of the Treaty on the Functioning of the European Union. As a consequence, from June 2013 the new fund will succeed the European Financial Stability Facility and the European Financial Stabilisation Mechanism in providing loans to euro-zone members, strictly conditional on the implementation of a range of adjustment measures.
Whatever the situation may be in 2013, in 2011 the debt of Greece, Ireland, Italy, Portugal, and Spain will top €502 billion.
The financial requirements of Spain’s central and local government alone are estimated to be about €470 billion up to 2013.
The amount in the fund will be €700 billion, with a loan capacity of €500 billion.
Obviously feeling under pressure, Mr Gilmore claimed:
The manner in which the ESM is structured means that each country’s contribution will not impact on its general government deficit.
His reasoning? Euro-zone members will actually disburse only €80 billion, in five annual instalments, beginning in 2013. The remaining €620 billion of the subscribed capital will be made available by way of “callable capital” and guarantees.
But, as Wolfgang Manchau, has pointed out (Financial Times, 28 March):
But here is the crux: Germany and France whose sovereign bonds have a triple A rating would not need to put up actual money to cover any shortfall of paid-in capital. A guarantee would do. But countries with lower ratings such as Italy, Spain and yes Portugal, Ireland and Greece would have to pay cash. So we are in a perverse situation. Countries with easy access to capital can provide cheap guarantees, while the weaker countries must put forward cash … Since this guarantee has to serve as the equivalent of a pre-paid cash payment, a guarantee by a non-triple A rated country would not cover the shortfall.
For example, it has been estimated that for every €100 billion that may be necessary to “save” another country or countries of the euro zone, the Italian budget will be burdened by almost €18 billion (equal to the percentage in the budget of the European Central Bank), about one percentage point of Italian GDP, and this would occur at the worst possible time, when the markets would probably require high and rising interest rates.
How credible is the Tánaiste’s attempt at an appeal to Irish self-interest?
We have to bear in mind that it is a fund and mechanism which we want to have available to us.
Unlike the International Monetary Fund, whose decisions require a simple majority of the shares, the ESM decisions on approving a loan, determining the interest rate and the conditions require the unanimity of euro-zone finance ministers. Each country is effectually given a veto in the Board.
It is not difficult to imagine scenarios like the following: country G, which is in good financial health, trades its consent to lend to country I in exchange for the latter consenting to adopt the very policy measure that mostly benefits country G – for example an increase in the corporate tax rate.
What then, Mr Gilmore?
Deputy Gilmore also confirmed that the Government continues to hold to the same anti-democratic stance as its Fianna Fáil predecessor and that it will not put the proposed amendment to the treaties to the people in a referendum. He cited an opinion of the last Government’s Attorney-General as the authority for this stance. Needless to say, the loyal Fianna Fáil “opposition” did not object to this, nor to Mr Gilmore’s refusal to publish the opinion.
But the Government and the opposition are walking on thin ice in adopting this stance.
Democracy is being denied so that the German and French governments and the Brussels top brass will not be inconvenienced. However, the principles laid down in the Supreme Court’s Crotty Judgement in 1987 may yet come back to catch them out.
Separately, the German government anxiously awaits a ruling of the German Constitutional Court on the compliance of the current temporary EU “bail-out” fund with the German Constitution. The court may find the type of conditional loan that was pushed on Ireland last November to be in conflict with the Treaty on the Functioning of the European Union (articles 125, 123, and 122). The proposed European Stability Mechanism will replace the temporary one from 2013 but is open to challenge on the same grounds.
Ireland was pressured into taking this loan to ensure that insolvent Irish banks would not go bust and that their debts would be shifted onto the Irish state and the Irish people, in order that German, French, British and other banks that had provided massive loans to them would not make losses on their reckless lending to the Irish banks and property market.