German poll says no bail-outs
Mary Ellen Synon Irish Daily Mail - 20 July 2009
I'll just put the figures right here at the top, so nobody forgets what the issue is: the Government will spend €60bn this year, but take in just €34bn in revenue. That logs in at spending €60m a day, half of which goes on public sector pay. On those figures, the Government must borrow money at a rate of around €400m a week, or the State will seize up.
And that kind of economic recklessness is the reason we have to pay a premium rate for our 10-year debt of about two and a half percent over what the Germans pay for theirs. The sovereign debt markets look at us and our free-falling economy and our fiscally-incontinent Government, and calculate there is a notable possibility of default on our debt. So we have to pay that extra premium or they won't lend us the money. We are regarded as such a shaky credit risk that we have to pay the highest penalty interest rate in the eurozone.
Of course, Brian Lenihan and the rest of the Government keep trying to convince us that everyone else in Europe is in as big a mess as we are. They fudge the fact that the sovereign debt markets – the men with the money – make us pay a bigger premium on our debt than even Greece or Italy, two of the most disaster-soaked economies in the eurozone.
If things get even worse here – and they may well -- the markets may decide they won't lend to us at all. They may decide that when the National Treasury Management Agency tries to auction more bonds, they just won't buy. That threat, that the billions in loans may stop, is the only threat that could actually push this Government to make the spending cuts outlined by Colm McCarthy.
Problem is, the Government have been putting out the line that, if no one will buy our bonds, for sure the other, stronger member states of the eurozone will bail us out. For other, stronger member states, read 'Germany.' But here's the secret, and it is something the Government do not want you to know, not this side of the next Lisbon referendum: Germany may not bail us out. More on that in a moment.
Of course, bail outs are not supposed to be allowed at all, anyway. One reason the German people allowed themselves to be persuaded to give up their solid independent currency, the Deutsche mark, and accept the untested euro was because the Maastricht Treaty included a clause prohibiting any bail outs by one country of another.
In other words, the Germans were given a clause to assure them that the consequences of the economic irresponsibility of any other eurozone country would never be borne by the German taxpayers, despite being tied to the same currency. Each individual eurozone country would be responsible for its own debt, for all the consequences of its own economic and fiscal policies. The shorthand for this is, 'no bail outs.'
All of which was so easy to promise during the good times. The problem now is, since the good times are over, the economic and fiscal policies of the worst of the eurozone economies could well lead to one or more of them being forced to leave the euro.
While this would make good economic sense – for example, what the Italians needs now is to fall back on their old policy of competitive devaluation of their national currency, something they can't do while they are chained to a single European currency – it would be politically disastrous for the euro-fanatics who have been planning a currency union for decades. Their plan has always been: first a customs union, then a free trade area, then a single currency, then a fiscal union. That goal is rarely mentioned, but fiscal union is one of the many things hidden in the phrase, 'an ever-closer union.'
Luckily for the euro-fanatics, Angela Merkel, the German chancellor, is on their team. She and some of her cabinet members reckon they have too much political capital invested in the European 'project' to allow the economically-profligate eurozone countries to unzip the monetary system now. Mrs Merkel [subs Mrs, of course] has dug out a line from Article 100 of the Maastricht about how a bail out could be allowed for a member state in the case of 'natural disasters' or 'exceptional occurrences beyond its control.' She says this allows some 'interpretive room for manoeuvre.'
Somehow she wants to manoeuvre the term 'natural disaster' to include the decision by the Irish voters to elect a Fianna Fail-led government three times in a row. I'd say that is quite a stretch, though of course since the Irish did repeat the disaster three times in a row, she can hardly call it 'exception occurrences.'
Yet that is what our Government is counting on, that Mrs Merkel and her government will use German taxpayers' money to keep our loans coming in even if the sovereign debt markets cut us off. Indeed, our Government is using this 'assurance' as part of the propaganda to persuade us to vote Yes in the next Lisbon referendum.
Mrs Merkel's plan has apparently been moving along well these last months. Last February, the German finance minister said that, 'If one eurozone country gets into trouble, then collectively we will have to be helpful.' The German finance ministry has already been working on ideas for such bail outs, including bonds that would be backed by more than one eurozone country.
This may explain the lack of urgency with which our Government are treating the need for big, big spending cuts. They are going to do nothing about the recommendations in the McCarthy report until the December budget. This could indicate the Government reckon that, ultimately, they are safe, there is no need to rush, they can go on with their political calculations, because even if the sovereign debt markets abandon us and our bonds, the Germans will come to our rescue.
Which may be our Government's deadly mistake. They are confusing 'the German government' with 'the German people.' Certainly, the German people have been listening to Mrs Merkel's plans for a bailout. But they have also been listening to warnings from such respected men as Karl Otto Pohl, once the president of the late and much- missed Bundesbank, the central bank of the Deustch mark days, who has warned against bailing out other members of the eurozone.
They have been listening to the former chief economist at the European Central Bank, Otmar Issing, who has said it would be a catastrophe to water down the no bail out clause. They have been reading Der Spiegel magazine, which warned that if Germany were forced to pay into a bailout based on its size relative to other eurozone countries, 'it would be forced to cover one-fourth of the entire tab.'
And if you want to know who the German people believe, Mrs Merkel or economic grandees such as Mr Pohl and Mr Issing, here is the answer. In an opinion poll conducted in June by the German polling company Psyma, just over 70 percent said they did not believe that German taxpayers' money should be spent 'on helping countries like Ireland or Greece.'
The poll was published last Friday by the Institute for Free Enterprise in Berlin and the Open Europe think-tank in London. Wolfgang Muller from the institute said: 'Germany is already Europe's sugar daddy. This poll confirms that German taxpayers are not willing to accept an ever-increasing fiscal burden. Bailing out Ireland would send the wrong signals to governments in the EU.'
Mr Muller is warning his fellow countrymen that any such support from the German government will lead to higher taxes, more debt and will therefore would endanger German's competitiveness – and Germany already has higher unemployment and an even deeper economic downturn looming: 'Any plan to try and buy Ireland's Yes vote to the Lisbon Treaty with talk of a bailout must be strongly rejected.'
Mrs Merkel and her government will face parliamentary elections in September. They may get a sharp reminder that they are in office to look after the Germans, not the Irish.
© Irish Daily Mail