Thread: Banking crisis has set Irish government against EU

Banking crisis has set Irish government against EU

Up until last week, when at least one, and possibly two, Irish banks stared into the abyss, Brian Cowen and his cabinet in Dublin had been preoccupied with what to do about Europe. Before the financial world spun on its axis and the Irish government was propelled towards emergency action to save the republic's banking system one of the two main concerns exercising the minds of Cowen's coalition was how to sell Lisbon Mark II to their electorate.

While the Fianna Fáil-Green-Progressive Democrat government has moved its focus temporarily away from trying to rescue the EU reform treaty that Irish voters mortally wounded back in June, the financial crisis and their response to it could have a longer term impact on Irish European policy.

At present serious consideration is being given to a "put up or shut up" European referendum next year, according to one senior source in Fianna Fáil. In a rerun of Lisbon, Irish voters will be given a stark choice: either back the EU reform programme or by voting "no" your country is in effect ejecting itself from Europe.

To sweeten such a bitter choice, the EU will issue public guarantees that Ireland's traditional neutrality is under absolutely no threat, and that the republic can opt out of any military alliance it feels uncomfortable about. Irish Catholic bishops, meanwhile, will be enlisted to assure those conservative, devout sections of the electorate that Ireland's ban on abortion cannot be undermined by any section of the Lisbon treaty.

Ireland's move to shore up its banking system has already provided opponents of Lisbon with deadly ammunition in the propaganda war. Some of the most effective anti-Lisbon campaign groups, such as the pro-business free-marketeers of Libertas, have pointed out that Ireland acted unilaterally in its own national interests first. The Irish government, they say, didn't wait for Brussels to give the nod to their aid package for the banks. They just went ahead and did it.

It wasn't just Alistair Darling who rang Brian Lenihan, the Irish finance minister, to warn against the dangers of the republic going it alone on the banks. A range of EU politicians stepped forward last week to complain about - and indeed condemn - Irish financial unilateralism. Brussels, Berlin and Paris wagged the finger, but Ireland ignored all the admonishing.

Having gone on a solo run by saving their banks, the Irish government now faces the danger of latent public hostility to an EU that would have, at the very least, slowed down or blocked that aid programme. Suddenly Europe was quite vividly in opposition to an Irish government – a point that will be amplified by opponents such as Libertas if and when the Cowen administration go back to the people.

The chaos in the global financial system and the Irish government's response to it however does provide the Cowen government with some ammunition of their own in the struggle over Europe. In its battles with its rightwing opponents such as Libertas the government can paint them as free-market zealots of the kind that created the credit crunch first in the United States and then the rest of the world. Ireland, as one Irish minister infamous put it, faces a choice between the economics of Boston or those of Berlin. With American free-for-all capitalism apparently in freefall, the Irish government could argue that the EU economic model, including its regulations and state intervention, suddenly looks like a more attractive, solid alternative to Boston.

Meantime the taoiseach and his ministers and advisers have to turn their attentions away from Lisbon Resurrected to next Tuesday's budget. Senior Fianna Fáil sources have confirmed that it will be, in their words, "a brutal budget" with swingeing cuts across the public sector and a hike in indirect taxation.

It will in effect be as harsh as the budgets of the late 1980s, when Ireland was enduring mass unemployment and net migration. Pro-Europeans might point out too that during those dark days of recession one of the few institutions to inject badly needed cash into Ireland's infrastructure was the EU.

http://www.guardian.co.uk/politics/blog ... 10/ireland

Talking to family in friends in Ireland, the people BLAME the EU for the death of the "Celtic Tiger". I see at the end of the day, either Ireland fully pulling out of the EU, or becoming such a weak member that the EU will really have no power over the people.

Ireland's economy ends long winning run

By SHAWN POGATCHNIK – 5 hours ago

DUBLIN, Ireland (AP) — Davey McKeever was down to his last bet slip of the night, crumpled in a sweaty fist, at the Shelbourne Park greyhound track. The remnants of McKeever's first unemployment check would rise or fall on the ironically named Nest Egg.

When the jet-black greyhound fell behind at the bend, the recently laid-off plasterer found it too painful to watch. He bowed his head. He looked up again just as Nest Egg crossed the line a frothy-mouthed winner — two lengths ahead of an underdog named So Your Crazy.

"I am going crazy," a flushed, visibly shaking McKeever said as he collected his winnings without pausing for a celebratory pint of Guinness with his friends. His $170 win was already destined for his 35-year mortgage on an apartment bought at market's peak two years ago.

"For the longest time I've enjoyed a night at the races. I've had cash for a social life, for the odd splash-out, for foolish bets," said McKeever, one of more than 20,000 workers laid off this year from Ireland's suddenly dormant building sites. "The dumbest bet I've ever made was on this Celtic Tiger. Now I can't afford to lose."

Tens of thousands of Irish face a financial white-knuckle ride because Europe's longest-running winning streak — the vaunted Celtic Tiger economy — has come to an inglorious end. Last month, Ireland became the first country in the 15-nation euro zone to fall into recession, and economists predict that a familiar era of closing factories and net emigration could return.

"We face stark choices. If we do not make the right ones, it will have catastrophic consequences," Prime Minister Brian Cowen said at a dinner of the country's top businessmen last week as his government authorized an emergency plan to insure the nation's banks against collapse.

The speed of the reversal has stunned Ireland top to bottom. And denial is giving way to desperation.

"We've had this corpse on the kitchen table for a while, and it's just today we've decided that it's actually dead," said Eddie Hobbs, Ireland's ubiquitous investment guru.

Hobbs became a national icon three years ago when he fronted a blunt-spoken TV series called "Rip-off Republic" highlighting the outrageous expense of boomtime Ireland and foreshadowing the crash to come. This month he's featured on an Irish financial magazine's cover in full battle gear and offering street-smart advice on how to survive Ireland's first recession since 1983.

Hobbs' gloomy forecast: property price drops of 20 percent to 60 percent, labor strikes and government cutbacks. He noted that Irishmen and women who grew up in the 1980s or earlier know how bad things might get, but to the Celtic Tiger's cubs "it's about as alien as a moonscape."

From 1994 to 2007, Ireland was one of Europe's brightest stars. Its gross domestic product expanded at nearly triple the European average. Unemployment fell from 15 percent to below 4 percent, and a centuries-old tradition of emigration was turned upside down.

About 1,000 foreign companies, more than half of them American, arrived or expanded in this English-speaking outpost on the EU's western edge. The companies largely sought to exploit a 12.5 percent rate of business tax, the lowest within the euro zone, and took heart from the arrival of peace in the neighboring British territory of Northern Ireland.

Within a few whirlwind years, Ireland shed its status as one of the EU's poorest members and became a magnet for many of Europe's best and brightest graduates in software design, information technology and drug research.

As in the United States, good times fueled a runaway property market, the fastest-growing in Europe. Thousands of Irish-emigre engineers, architects, plasterers and bricklayers came home from as far afield as Sydney and San Francisco.

Sean Six-Packs bought half-built apartments off architects' plans and collected hefty profits selling them a year later. Barmen bought a half-dozen properties on the side. The typical family dinner-table conversation swirled about the next smart development deals from Tipperary to Tuscany, and about how impossible the traffic was getting with all the new houses and cars.

Then the U.S. subprime crisis sent shockwaves across the Atlantic, hitting particularly hard the most America-dependent economy in Europe. International investors cast a cold eye on the exceptional exposure of Ireland's banks to property developers, bad loans and grossly inflated land prices.

The bank-heavy Irish Stock Exchange has shed nearly three-fourths of its value since April 2007. As Dublin bankers' ability to borrow internationally dried up, the government responded with a world-first guarantee for all deposits and borrowings of Irish-owned banks — a liability so big it represents $130,000 per man, woman and child.

The guarantee seemed to work, with a reported $14 billion in new deposits flowing into Dublin this month. But the decision to take on bank liabilities exceeding $550 billion has maimed the nation's credit rating. This is particularly bad timing for Ireland because, after more than a decade of double-digit hikes in spending and fat budget surpluses, the national finances are glowing neon red.

Finance Minister Brian Lenihan estimates that Ireland will have to borrow more than $16 billion this year to balance the books, or 5.5 percent of GDP, the worst deficit since the mid-1980s. Economists say the country's lower credit ratings will add around $85 million to annual interest costs on national debt.

Some economists say Ireland had no choice, because it faced a real risk that its six homegrown banks would fall like dominos.

"Had Brian Lenihan not intervened courageously to guarantee all deposits last Monday night, then at least one, if not two, Irish banks would have collapsed last Tuesday," said David McWilliams, an investment banker-turned-commentator who has warned for nearly a decade that Ireland's love affair with property would end in tears. "There simply was no other choice." McWilliams said Ireland's property prices were "nowhere near the floor yet."

For now, the property market remains at a virtual standstill; an estimated 20,000 newly built homes lie unsold and no significant new developments have been launched in the past year.

A few of the country's biggest developers, sitting on half-filled luxury developments on Dublin's posh south side, would rather offer interest-free money to potential buyers than allow their prices to drop officially.

"The property business has been cyclical since Adam was a boy. You have to expect ups and downs. But the up always comes," said Ray Grehan, managing director of major Dublin developer Glenkerrin Homes, which is waging a high-stakes blinking contest with the moribund market.

His Grange development, which includes $3 million penthouses and a 24-hour concierge service novel to Ireland, sold its first 200 apartments rapid-fire in the heady days of 2005. He blamed Ireland's membership of the euro — which delivered interest rates much too low to control Celtic Tiger excess — for pushing up prices too high and too quickly.

"The cheap money was like adding rocket fuel to a fire," he said. "It was an absolute feeding frenzy, especially in 2005 and early 2006. There were queues of buyers at pretty much every development across the city."

Today, Grehan sits in the middle of the unfinished Grange, whose construction hoardings boast images of catwalk models, champagne flutes and the motto "The spirit of gracious living."

Scores of apartments remain unsold, two-thirds of would-be buyers have reclaimed their deposits because of cold feet or credit shortcomings, and a third phase is on indefinite hold. He's dropped prices at least $140,000 and is offering zero-interest loans good for seven years equal to 15 percent of the purchase price.

He employed 1,200 construction workers two years ago, but today just 200.

Grehan, 45, who started out as a tiler 24 years ago, remains reassured and inspired by how far his nation has come. Back then, he said, Ireland was not much better than a Third World country. Now its whole national image has changed.

"We have the youngest, fastest-growing population in Europe, our schools are bulging at the seams, and those kids are going to need someplace to live," he said. "So the Celtic Tiger can make a comeback. But he will be a tamer tiger."


http://ap.google.com/article/ALeqM5jstu ... AD93O31DG0

I hope they all get out of the EU.

We need to get out of NAFTA.

Dixie

Originally Posted by Dixie

I hope they all get out of the EU.

We need to get out of NAFTA.

Dixie

My understanding, at least in the County my in-laws live in, there is a grass roots push to give the EU the big Irish finger.

this is truly "David Vs. Goliath" ... I'm praying and betting on "David"

Originally Posted by AirborneSapper7

this is truly "David Vs. Goliath" ... I'm praying and betting on "David"

It would not be the first time this particular "David" took on a Goliath. Last time it took centuries, but they never gave up and eventually won