Everyone is talking about the royal wedding today. It will be a great occasion but
the public finances are tight and people are already asking about the cost. There is a bigger issue for British taxpayers, though. Our politicians have arranged for them to get hitched
to the bride from hell: the ongoing fiscal disaster in the eurozone.
Under current plans it is reported
that we could
be liable for up to £7 billion in any Irish bailout. At the TaxPayers’ Alliance
, we have just this morning started a petition
against British taxpayers’ money being put at risk for a euro-bailout of Ireland; you can sign it here
The eurozone is fundamentally broken. All the arguments that the sceptics made for a number of years have been proved correct. The commentators who dismissed them and urged that we take
up the Euro ourselves in august publications like the Financial Times should be hanging their heads in shame.
A single currency meant that for years the Irish had the same interest rates as the sluggish German economy. That built up a huge asset bubble built on cheap debt that has now collapsed,
taking their economy and public finances with it. They aren’t getting the appropriate rewards for cutting spending and getting a handle on the deficit, because as a result of that
collapse their banks need so much assistance. Their deficit is an eight-hundred-pound gorilla that even an admirably tough minded government isn’t able to wrestle to the ground.
The Irish Government understand the severity of the crisis. Their objective is to maintain their ability to decide how they make the cuts. If they take a euro bailout, they will start
to have policy dictated to them by their new paymasters in Brussels and Berlin. Politicians in high tax countries like Germany have been looking for an excuse for years to stop the Irish
maintaining their low rate of corporate tax. Hiking Ireland’s corporate taxes won’t raise revenue. It will reduce economic growth by putting off new international investment
and encouraging companies already in Ireland to leave, which will mean less revenue over time. This would be of course be in Germany’s interests, not Ireland’s.
A bailout will by no means solve Ireland’s or the euro’s problems in the long term, it will just buy another temporary reprieve for the fiscal problems in the eurozone. Just
yesterday, Nouriel Roubini described
it as an attempt to “kick the can down the
road”. In the United States, where they have a bit more perspective on this issue, economists from all sides of the ideological debate, from Martin Feldstein
to Paul Krugman
recognise that the eurozone’s problems are too fundamental to be resolved by this kind of sticking plaster.
British taxpayers rejected the Euro. They made the right choice and shouldn’t now see their money put at risk bailing the project out. If German and French politicians put such a
premium on maintaining the Euro as a political project, then they can pay the huge ongoing price to keep it afloat.
We should be encouraging them to face up to the euro’s failure. Paul Krugman wrote
back in April
that he had reconsidered his earlier view that, while the euro may have been a mistake, leaving is unthinkable. Yesterday Ruth Lea said
“At some point, the EU will have to come to terms with the exit of some of their members – the sooner the better. Of course there are implications for the banks – but better
to deal with their problems directly rather than struggle with propping up the unsustainable.”
We need to reject this bailout. The Irish are important trading partners and we should, of course, hope they can come through this in as good shape as possible. But they need to
recognise the fact that their luck has deserted them on this issue, and face up to the fundamental failure of the eurozone. British taxpayers must not be required to support vain bailouts.
Matthew SInclair is Research Director at the TaxPayers' Alliance