Nobody really likes an ‘I told you so’, but...
FIRST Greece and now Ireland; so where next?
The 85billion euro Irish bail-out deal was showing little sign yesterday of putting an end to the crisis enveloping the eurozone.
Five-year credit default swaps (or CDSs, contracts through which government debt is insured against collapse) hit new record highs in respect of both Portugal and Spain, the two other nations making up the so-called “PIGS” quartet of tottering economies within the single currency.
CDSs for Italian, Hungarian and Polish government bonds also rose, while those for Irish and Greek debt fell.
How many other countries besides Ireland and Greece will require a bail-out – Portugal appears to be the current favourite to be next – is one question.
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How long the German government will be willing to keep bearing the brunt of the cost is another, although this might be more a matter of how long the German people are willing to let it.
Supporters of the single currency project argue, in essence, that Ireland’s problems should be blamed not on its membership of the eurozone but on the exposure of its banks to collapsing prices following a property bubble.
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It terms of the immediate circumstances surrounding the Irish crisis, the issue of the banks and the risks inherent in their former lending policies is no less relevant in Ireland than elsewhere.
But if one considers the chain of factors involved, there is an unavoidable line of logic stretching all the way from Dublin to Frankfurt.
The crisis in Ireland, as in Greece, illustrates that when a nation hands over control over monetary policy to others, it is left with very few tools in the box with which to manage its economy when it comes under external pressure.
Applying a single rate of interest across economies vastly differing in terms of structure and strength was always likely to end in tears, and so things are now proving.
The curiosity, from the UK perspective, is that the “good guy” in all of this is Gordon Brown.
Certainly he was at fault as Chancellor in presiding over excessive government borrowing in advance of the financial crisis and, as Prime Minister, in proposing a strategy (thankfully rejected at the General Election) which would have involved the debt climbing further before beginning to fall.
Had Labour won in May, the response of the markets and the ratings agencies would have pushed Britain closer to the kind of crisis witnessed in Ireland this month.
As it is, Mr Brown may yet be remembered most for resisting Tony Blair’s mindless enthusiasm for the euro and keeping the UK well out of it.