Irish Money, EU Budget – In Doubt

• November 18th, 2010
• Posted by EUEditor

A special loan for Dublin looks likely at the end of a week which saw Irish government leaders arguing with EU Finance Ministers in Brussels about whether, when or how their country would be helped out of its budget crisis.

In the meantime the European Parliament and national governments tussled over the forthcoming EU budget, still no settlement made.

IRISH MONEY

Representatives of the International Monetary Fund and the European Central Bank were in Dublin on Thursday and Friday, said to be offering a loan of some €40-billion (A$55.2-billion, XE.com, 18.11.10) over four years.

There might also be a new arrangement to guarantee borrowing by Irish banks.

The Irish Central Bank Governor, Patrick Honohan, said the  money would not form part of any comprehensive bailout arrangement with prescribed conditions, but his government would have to accept the loan.

The Irish Finance Minister, Brian Lenihan (picture), had been telling his counterpart Ministers in the sixteen-member Eurozone group that his government had sufficient money at least for the coming year and did not want a special deal.

His Prime Minister,  Brian Cowen, had declared that  talk of a bailout belittled Ireland, though it is little enough in reality, producing well below 10% of the wealth of the Eurozone.

The Irish Ministers’ concerns were about conditions that might be attached to a special arrangement, such as drawing on the EU financial assistance mechanism set up to enable governments that needed it, to borrow money at affordable rates.  See EUAustralia Online, “EU Summit: In Greeks we trust”, 28.3.10.

They were said to be watchful of pressure to move away from very large tax concessions they give to industry, attracting  major overseas players to set up in Ireland and pay overall tax as little as 12.5%.

Not entirely neo-liberal blarney and an asset-stripping of the state, the easy money policies of recent decades had brought considerable new wealth, but the recession in 2008 saw a severe drop in property prices that put banks on the line.

The Irish government then guaranteed bad loans held by its banks, and this week it has been unable, or grossly stretched trying to borrow money on wholesale markets, to support its budget.

See EUAustralia Online, “Economy: Ireland confronts the cost”, 1.10.10.

Whether obtaining support through the EU mechanism or a separate deal involving the IMF, paying-back will still require that the Dublin authorities find taxation revenue (apart from the special corporations’ rate they want to keep), or other revenue from somewhere, with a further tightening of already-stiff fiscal measures also likely

Other members of the Eurozone  – the sixteen countries that use the Euro currency – want to avoid a situation where Ireland might default on its sovereign debt, fearing a contagion could set in, with lenders putting pressure on other governments in the group.

Some of the fear inherent in that situation was let slip this week by Herman von Rompuy (picture), President of the European Council, the body made up of Ministers of member governments of the EU.

While emphatic that he did not anticipate a failure, he was quoted, at a Brussels conference, that:  “We are in a survival crisis… We must all work together to survive with the Eurozone, because If we do not survive with the Eurozone we will not survive with the European Union.”

It proved great fare for “Eurosceptics” of all stripes.

Europe cautiously moving out of recession has been wrestling with a policy dilemma: some, especially the more conservative member governments, are demanding austerity everywhere, to get over crippling debt; others want to keep the emphasis on some stimulus for growth and jobs – the other way of tackling hard times.

EU BUDGET

That debate has been going full swing since mid-year, affecting efforts to put together the 2011 budget for the European Union itself.

See EUAustralia Online, “Battle of the budgets”, 18.7.10.

The contenders are Members of the European Parliament supporting a budget increase of 5.9% and member governments saying they would not go beyond 2.9%.

In the negotiations which broke down this week, with still no budget, the MEPs had retreated to accept 2.9% this time  – noting it would translate into very large cuts for some EU agencies – on condition that they get a more determining say in the terms of future budget arrangements.

Such conditions were not met, putting in jeopardy the statutory obligation to decide on the budget within a set time frame.

Talks will happen again, and the Finance Ministers of the member states are to meet at the same time as the end-of-year EU summit, 16.12.10, to try for a settlement

Reference

Constant Brand, “The EU’s budget limbo”, European Voice, Brussels, 18.11.10. http://www.europeanvoice.com/article/imported/the-eu-s-budget-limbo/69437.aspx, (18.11.10).

CNN, Dublin, “Talk of loan ahead of Irish debt crisis meeting”, 18.11.10. http://edition.cnn.com/2010/BUSINESS/11/18/ireland.debt/?hpt=T2, (18.11.10).

Forexyard.com, Reuters, “EU finmins call emergency meeting on 2011 budget”, 17.11.10. http://www.forexyard.com/en/news/finmins-call-emergency-meeting-on-2011-budget-2010-11-17T135406Z-EU, (18.11.10).

Irish Independent, Dublin, “Central Bank Governor expects multi-billion euro loan”, 18.11.10. http://www.independent.ie/business/irish/central-bank-governor-expects-multibillion-euro-loan-2425794.html, (18.11.10).

Joe Weisenthal, “EU President: ‘We Are In A Survival Crisis’, Business Insider, Dublin, 16.11.10. http://www.businessinsider.com/eu-president-rompuy-we-are-in-a-survival-crisis-2010-11#ixzz15dFpjcVN, (18.11.10).

Pictures

Dublin – eis.bris.ac.uk, Lenihan – finfacts, Van Rompuy – eu 

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