David Blackburn

Ireland’s crisis is the fault of Fianna Fáil, not just the euro

Ireland’s crisis is the fault of Fianna Fáil, not just the euro
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In all likelihood, George Osborne will rise this afternoon to groans if not jeers. Britain looks set to lend Ireland £7bn as part of multilateral and bilateral bailouts. Many, particularly the Eurosceptic right, question our involvement, given our straitened financial circumstances and the apparent fact that Britain is sustaining the eurozone’s monetary and debt union, and will have to borrow to do so.    

George Osborne has been adamant throughout: Ireland is too important to Britain’s recovery to risk collapse – British and Irish banks are closely linked, debts and borrowing are often co-dependent, trade is very profitable. That the bailout should strengthen the euro is a natural consequence of Ireland being a member of the euro. In other words, the euro is not wholly to blame for Ireland’s woes. Membership of the euro lowered Ireland’s borrowing costs, but the Celtic Tiger had a gambling problem. The ruinous housing bubble was the consequence of Fianna Fáil’s refusal to regulate mortgage lending; meanwhile the government was determined to sustain reduced tax rates, while dramatically increasing public spending.

This is not to say that the euro might not collapse, or that Britain shouldn’t plan for that contingency.. But the pattern of Ireland’s crisis was remarkably similar to Britain’s, and, as Bill Emmott notes in the Times (£), ‘Iceland’s similar banking crisis in 2008-09 shows that Ireland would have been in just as much difficulty outside the euro, except that a currency crash would have made it bankrupt even sooner, and the IMF would still then have been called in.’

But whilst Iceland came cap in hand; Ireland blustered on, making guarantees it could not keep. Since 2008, Cowen’s government has bluffed, double-bluffed and bluffed again about its economic and capital strength. It lost no time in guaranteeing 100 percent of bank deposits – a beggar-thy-neighbour (should read bugger-thy-neighbour) attempt to recapitalize bankrupt banks by pinching depositors from other eurozone and European countries. Their latest bluff was to insist they didn’t want a bailout, that they were the victim of the ravening eurocrats. A swift about turn then, as Cowen and Lenihan grabbed the lolly almost as soon as it was offered. The peerless Mick Fealty contemptuously described Cowen’s earlier posturing as ‘Bertie-speak’. Put simply, Ireland can bluff no longer: it has run out of money. 

Casino banks are one thing, casino governments another. No wonder Angela Merkel wants a tighter hold on her spendthrift and duplicitous neighbour, and no wonder she supposedly has George Osborne’s total support.