And that is the core of the crisis. It’s no longer just an Irish problem. If we go down, then Portugal and possibly Spain will follow and that will mean the end of the Euro, the European currency. It’s that serious.
The problem, as Kelly said, is the blanket guarantee given by the Irish government to our banks which is now dragging the country into insolvency.
No one will lend to the banks here except the European Central Bank and the other European countries who fund the ECB are now deeply concerned at how much this is costing. The Irish banks are eating up so much ECB funding that there won’t be enough to help other countries in trouble.
The secondary market price of ten year Irish government bonds has eased from 9 to 8 per cent over the past couple of days, but this is still a rate that makes state borrowing impossible. So we’re not in the market. We have enough funds to keep going until the middle of next year, as the Government keeps saying, but that does not mean we’re okay.
Because of our huge budget deficit we will have to go back into the market next year to sell bonds to raise the money to pay our bills later in the year. The hope is that by severely slashing spending in the budget in three weeks, the markets will be convinced that we are on the right track and will drop the rates back to five percent or so.
But it’s far from certain that will happen. Equally far from certain is where Irish banks can get more funds to keep going. The Irish Central Bank has printed around 30 billion of paper to fund them over the past year or so and that can’t go on. Increasingly, other countries in Europe are asking why they should pour even more funds into the Irish banks when there is still no bottom to the black hole in sight.
And an even bigger problem for us now is the collateral damage this situation is causing to Europe. It’s quite clear now that, in spite of what the Irish Government is saying about not needing a national bailout, the EU wants us to take EU/IMF funding right now and sort out the problem before it gets any worse and before it drags other weak countries down as well.
Sources in Brussels say that behind the scenes the EU is putting severe pressure on the Irish Government to immediately accept around 70 billion in EU/IMF funding. The government is still saying No because of the loss of economic sovereignty involved, which will mean IMF people telling us what cuts to make, taxes to raise etc.
However it looks more and more like they will capitulate following comments made by Brian Lenihan after the European Finance Minister’s meeting in Brussels.
The mad professor is about to be proven right again.
|Cartoon published in British newspaper, the Independent, on Tuesday|