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Friday, 1 October 2010

Drunken Premier Playing Into Hands Of EU...

A drunken Premier playing right into the hands of the EU

Can one bank bring down a country? At the end of August, a reporter from the New York Times asked that question about Ireland's bust Anglo Irish Bank.

The Dublin government denied such a thing were possible. Yet now it is looking very much like it might happen.

Anglo's debts are so vast that the government may have to pay 34billion euros to bail-out the bank. Bail-outs for other Irish banks will bring the total to 50billion euros.

Party animal: Irish Premier Brian Cowen and admirers at a Fianna Fail function

Brian Lenihan, the finance minister, was forced to admit yesterday that these bail-out costs will push the national deficit this year to 32 per cent of GDP.

Such figures would be shocking in Britain. Even at its worst, Britain's deficit is heading for little more than 10 per cent.

However in Ireland, where the entire working population numbers just 1.8million and unemployment is at 14 per cent, figures like that are beyond shocking. They are catastrophic. Words such as Armageddon and apocalypse are being used by economists.

But here is the worst of it. The EU chiefs not only think that Ireland's crisis will turn into a national death-spiral, they may be secretly hoping it will.

Brussels knows that the further Ireland and other troubled eurozone countries sink into financial disaster, the greater the excuse the eurocrats can find to achieve one of their long-standing ambitions: to take control of national budgets.

Yesterday, Olli Rehn, the European commissioner for economic and monetary affairs, said he intended that the punishments planned for eurozone economic rule-breakers such as Ireland should soon be extended to all members of the EU, including Britain.

Commission president, Jose Manuel Barroso, prophesied 'the biggest step forward in economic governance'. What that means - and this is why it should alarm Britain - is that EU chiefs want national budgets to come under their scrutiny. Any member state which failed to meet budget criteria laid down by Brussels would be fined, perhaps have EU funds cut off, and possibly lose its vote in the European Council.

The commission will use Ireland's present pain as an excuse to grab more powers.

Of course, it wasn't supposed to be like this. Ireland struggled its way out of debt and recession in the 1980s to find real growth in the 1990s. By 1997, the country was celebrated on the front cover of the Economist as 'Europe's shining light'.

But then came the single currency. Ireland joined the euro for the most foolish of reasons - to prove it was no longer under the influence of Britain, the old ' colonial' power. In joining the euro, the Irish wanted to prove theirs was now a 'European' country.

Membership of the euro was what began Ireland's disaster. First the European Central Bank ensured that eurozone interest rates were kept low to suit the sluggish German economy. Ireland's economy, however, was already bubbling. The euro's low interest rates were like pouring petrol on to a fire.

Brian Cowen, who is now prime minister, was finance minister during the period the boom turned into a bubble. He could have cooled the property market. Instead, he exploited it to indulge in a public spending orgy.

Now he refuses to take any responsibility for the crash, or the vanished tax revenues.

Instead, this month he embarrassed his country with an alcohol-fuelled 3am singing session in a Galway bar. It left him sounding, as one opposition politician put it, 'somewhere between drunk and hung-over' during an important national radio interview the next morning.

Since Mr Cowen inflated the bubble, house values nearly halved in Ireland and are still falling, and some of the commercial investment property has now lost 90 per cent of its value.

So much money gushed into rogue-lender Anglo that the bank grew to be the size of half of Ireland's national wealth. The crash left Anglo and the other banks debtors who could not pay.

Yet the Irish government has only recently admitted the full volume of this looming disaster.

For the first months following the world's crash into financial and economic turmoil, the Dublin government presented itself as uniquely virtuous.

It bragged about how its public sector pay cuts and spending cuts were more severe than in any other country.

What it didn't mention-was that Irish civil servants were the highest-paid in Europe. The cost of public sector wages remains around 40 per cent of GDP.

Most of the austerity was an illusion, but the government won admiration abroad for appearing to make cuts. As the truth of the banks seeped out, the admiration stopped. A chorus of international economists started predicting disaster for Ireland.

Some now reckon Ireland must eventually default and be forced out of the eurozone. Some calculate Ireland will soon be in worse shape than Greece.

No one much believes the finance minister's constant assurance that the debts are ' manageable.' All the government's calculations are based on growth restarting in the economy. But in the last quarter, Ireland's stricken economy began to shrink again.

The question now is whether Ireland will have to turn to the EU for a bail-out. That is likely to come. But the cost to Ireland will be worse than borrowing more billions on the financial markets. It will be forced to surrender ever more control over its taxation and its spending to the EU.

Ireland's misery is Europe's opportunity. And Britain's grave danger.

Report by Mary Ellen Synon - Daily Mail.

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