We may be looking a perfect economic storm right in the face


It is now over two months since the Heads of Government of the eurozone countries met together at a special summit on July 21. Their task was clear: to show the international markets that the EU was determined to defend and protect the euro.

To achieve this, they needed to do a lot more than just send out signals of good intent. They had to take real and immediate action. They did.

They agreed a package of measures including an expansion to how the European Financial Stability Facility was structured, and major increases in the funds available to it.

They also agreed to reduce the interest paid by Ireland, Greece and Portugal on our bailout loans.

That was two months ago. Two months to the day after that July 21 announcement, the Dail got around to debating the legislation required to implement the changes. Unlike other matters, this delay was not due to Irish government indecision or vacillating. The hold-up was in the EU.

The new package of measures agreed back in July cannot come into effect until ratified by all member states. The sad reality is that a two-month delay in implementing urgently required actions is “immediate” in EU terms.

Ireland is not the slowest country to act here. Far from it. Other national parliaments such as the Maltese and Estonian legislatures will not have passed the required legislation by the end of September deadline suggested by President Barroso. This process will now roll into October.

And we wonder why the international markets and financial experts do not have confidence in the EU leaders’ capacity to respond effectively and speedily to a crisis.

Parliaments across Europe should have been recalled in August to ratify and pass this legislation, but they weren’t.

The worse news is that the world has moved on dramatically since July 21. It has moved on considerably in the last few weeks.

The emerging storm that the July package was designed to pre-empt may well be upon us by the time we have just started to act.

The EU and the euro may be looking a possible perfect economic storm in the face.

The indecisiveness and half-hearted action that characterised the EU’s response thus far may be set to get even worse following the results of the state elections in Berlin, but there may also be a chink of light.

Once again Angela Merkel‘s ruling CDU has come second to the opposition SPD, though it did not lose these elections by anything like the margins it has lost others. In fact, the CDU gained two per cent compared to the 2006 result.

The real loser was her junior coalition partner, the FDP. It was beaten into fifth place, behind the Pirate Party, and lost all its 13 seats in the Berlin Senate.

In Irish terms, it was reminiscent of the Greens losing out to Capt Greybeard Adams’s Pirate Party.

This has placed greater pressure on Angela Merkel’s government, with her junior partners now looking increasingly shaky about staying the course.

They are not the only ones. Some in the CSU, a sister party of Merkel’s CDU, are openly questioning her euro policies and not in a way that would bring any comfort to any of us here.

A recent poll commissioned by ARD TV found that 65 per cent of German voters disapprove of the Chancellor’s handling of the euro crisis. Though, as an article in last week’s Der Spiegel asked: which decisions are they referring to? Merkel’s coalition has been shifting back and forth so much between opposing positions on the euro that it is hardly surprising public confidence is so low. RTE’s European correspondent found this out for himself in a vox pop on a Berlin city Street last Wednesday.

The one thing the euro does not need now is political instability in Germany. Poor state and local election results over the past two years have resulted in Germany taking decisions that have burdened the rest of us in Europe. The last thing we or any of the smaller EU nations can afford now is a German government paralysed by instability.

The one chink of light in this German saga, if the current arrangement collapses, is the possible emergence of a grand coalition: a strong and certain left/right SPD/CDU government. The euro’s long-term viability may all hang on that — further proof that the crisis is far more political than economic.

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