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Kenny Waves the White Flag

Posted on: October 30th, 2011

EUROPE’S bankers were given their ‘get out of jail’ card. Ireland’s Government opted for further captivity. Ireland’s taxpayers remain incarcerated.

There are few worse omens for ordinary punters than the spectre of a recovery in bank shares. Last Thursday’s spike in global bank indices was ominous. The 10 per cent rise in eurozone bank shares signalled that the bankers had once again triumphed in Europe.

Bank shares had their fifth-best day since 2004. The recovery was a relief rally. Bankers had won the tussle with governments over the size of recapitalisation. Independent observers had anticipated a far higher figure than the finally agreed €108m. The market spotted that bankers had won the day, wiping the governments’ eyes.

And they had. Bank shares rocketed.

While bankers were trying to contain their glee at the deal, Irish Government figures were trying to put a gloss on our humiliation.

Enda returned empty- handed. The best he could do was to suggest that the deal had none “no damage” to Ireland. It had brought “no harm”. He kept repeating that the deal was “unique” to Greece, banal eurospeak for there being no relief for Ireland or Portugal. The spin was feeble.

Imagine returning from negotiations, pleading that you had surfaced with “no damage”. Enda was right. The “damage” had already been done.

Our problem was that the damage had not been repaired. Indeed, no real effort for reparation was made. We had been suckered. We were the first to bleed our people dry. The Greeks, reluctant latecomers to rectitude, got a special dispensation.

The damage was done last November. It was done by the Fianna Fail-Green government when it surrendered to the Troika. It capitulated to the demands of international bankers and mortgaged the future of Irish taxpayers. We promised to pay unsustainable debts back to the same bankers who are now being recapitalised, despite their recklessness, courtesy of a deal cooked up behind closed doors by powerful forces in Europe.

Simultaneously, wayward Greece was being allowed out of debtors’ jail. Half its debt was being written off. While we were sweating in the same suffocating doghouse as Greece, the only oxygen available was being given to the bigger sinners.

Unfortunately, Ireland never eyeballed Trichet, Barroso, Merkel or Sarkozy in the way that Greek premier George Papandreou did.

George carried a grenade to every session with the European leaders. If he had pulled out the pin, the euro would be blown to kingdom come. Kenny and Noonan waved the white flag. Their claims of minor concessions — such as the interest-rate reduction — are peripheral compared with the monumental write-off in Greek debt.

What a position to be in! We are once again greeted in Brussels as “good Europeans”. We may be good Europeans, but we are bad Irishmen. We are the poster boys for craven capitulation.

Europe approves of us. We are love-bombed but poorer, while the Greeks will be shunned, but enriched.

Why did Kenny and Noonan not head for Brussels and demand that if the Greeks can duck their debt, Ireland should be offered similar treatment?

The excuse offered by our Government — that Greece is broke — rings hollow.

We too are broke. Nonetheless, we are determined to impose further pain on our indebted population.

It is crystal clear that Ireland’s so-called “negotiators” were bystanders in Brussels last week. That is why they emerged with nothing.

Perhaps there is still time for our leaders to redeem themselves? The deal could yet unwind. It is riddled with dangers.

There is no guarantee that the plans to boost the European Financial Stability Fund (EFSF) will work its way up to the magic — but maybe mythical — one trillion figure.

Apparently this will be done by “leveraging” the fund up from its current €440bn figure. Quite a big jump, especially when it probably involves massive borrowings or the introduction of sovereign wealth funds and special investment vehicles.

Even Angela Merkel admitted: “This is an approximate value, we don’t know yet how it works.”

It hardly sounds like a fully worked-out rescue package. Europe is winging it.

Nor has the commitment that Greek bondholders will take a 50 per cent haircut been clarified. It is loudly paraded as a voluntary haircut. Nevertheless there is a worrying question mark over the identity of the volunteers! Nicolas Sarkozy and Angela Merkel are about to spend a few weeks twisting the arms of French and German bankers.

And the completion of the entire deal appears dependent on the generosity of ruthless Chinese financial czars and the good faith and integrity of Italy’s Silvio Berlusconi.

Nicolas Sarkozy is busy working the phones to his Chinese opposite number, while Klaus Regling, head of the EFSF, headed for Beijing with his European begging bowl.

If China turns down the begging bowl, then there is always the lender of last resort. Nicolas will have to call in a few IOUs from his departed protegee, Christine Lagarde, now head of the IMF.

And then there is Italy and Berlusconi. Even more than Papandreou, Berlusconi has Europe over a barrel. Italy has a public debt of €1,900bn, equal to a scary 120 per cent of gross domestic product. Europe needs Italy to survive, not sink.

The doubts about the volatile Berlusconi’s commitment to an agreed austerity programme are well-founded. Even after the Brussels deal, Italian bond markets were signalling a lack of faith in Berlusconi’s commitment to deliver. His government is in peril, posing a puzzle to investors: do they want Italy, the ticking European timebomb, to be governed by an unreliable Berlusconi or to fall back into its traditional pattern of unstable regimes?

Neither augurs well for an Italian programme of reform, so essential for the future of Europe. Amber lights are still flashing in Europe’s bond markets over Italy’s ability to fight off contagion from the Greek fallout. A failure of the third biggest economy in the eurozone to survive unscathed would be fatal for the euro.

The Brussels agreement is already shaky. At least one further European wobble is likely.

Ireland could take advantage of the next crisis. Fine Gael’s dismal by-election performance in Dublin West on Friday should force Michael Noonan and Enda Kenny to rethink their determination to submit to further European diktats.

The high vote for the United Left’s Ruth Coppinger and the surprisingly large Fianna Fail vote should send shudders down their shoulders.

Noonan’s response to questioning about Ireland’s strategy after the Brussels summit was worrying. He blandly insisted that our strategy was one of “growth”.

Wow. Is there a nation on earth which does not champion an ambition for “growth”?

If this is all that is left in the Government’s armoury, it would be better off taking the fight to Europe.

Papandreou has found that rattling his sabre worked. Berlusconi refused to take lectures on austerity from Merkel and Sarkozy.

We in Ireland should give up being “good Europeans”. Such a status may suit the bankers, but it bleeds the citizens dry.