EUROPEAN DIARY:Officials in Brussels see the bailout through the prism of perceived 'ungratefulness' for copious structural aid, writes ARTHUR BEESLEY
I WAS a business reporter in 2007 as the credit crunch shook the world of banking. It was a dangerous time in the financial scene and Ireland turned out to be woefully exposed. In Dublin, however, it was still commerce as usual. The ordeal to come seemed far away.
I received an invite one day to meet a banker in a major financial institution. A large transaction was under way and he wanted to discuss it. We duly did. In spite of dire business conditions globally and tension in interbank lending markets, the deal went ahead. Hundreds of millions were in play.
Like many of his sort, the banker was an upbeat fellow whose self-confidence seemed limitless. It was that way until we discussed the international situation, at which point his mood darkened. Anxiety in the markets was rising, he said. Lending was still in vogue but the expansion of lending might be curtailed, he mused. Some banks might stop lending altogether. It was alarming stuff.
After a few minutes he perked up again, saying things weren’t that bad really. After all, he had just signed a rather large cheque. The soft landing would settle matters, he said. As I left, however, he clasped my hand and stared in my eye. “The world is changing.” Outside it was sunny, I went back to the office. In the next few days I phoned other bankers. Nonsense, they said, absolute rubbish, Alice in Wonderland stuff, the system is fully funded. Again and again they said it, day after day. This was before Northern Rock went wallop.
Whenever good news emerged – there was still a little back then – I hoped the banker was wrong. When bad news came, and more and more of it emerged, I still hoped he was wrong. He wasn’t, but denial was everywhere. At Christmas time that year American papers reported gloom on Wall Street and London papers recounted fear in the City. It was still party time in Dublin.
The denial is over now and the EU-IMF intervention in Ireland proceeds this week. What is unfolding right now marks the culmination of pressures that have been building for years. First, weak banks were propped up by governments. Now weak governments are being propped up by stronger governments. The political system in Europe is stretched to the limits.
The rescue doesn’t flow from sympathy for the woe-struck Irish; far from it. The kindness of fellow Europeans has its roots in worries about the euro, concern that Portugal will be next and anxiety that any requirement for an intervention in Spain might prove too much for the European authorities to bear.
Spanish colleagues perceive intensive pressure from Brussels on prime minister José Luis Zapatero to harden his austerity drive. While Madrid survived a brush with peril during the summer, the Irish rescue is seen in Spanish circles as a portentous thing. It is the same in Portugal. Colleagues say an air of sanguine resignation at a harsh budget has turned in recent days to fear of a bailout.
Around Brussels there is a mixture of disbelief and displeasure at Ireland’s implosion. People may be too reserved to express frustration with Ireland in public, but a German I met the other day pointed to baffled resentment in Berlin at the extent of the collapse.
Simply put, he said, people see the bailout through the prism of perceived “ungratefulness” for copious structural aid when the Lisbon Treaty was voted down. There’s an abundance of other issues at play for sure, but that’s the reflexive response.
Whereas the Greek rescue saw euro zone countries intervene to save Athens, Ireland’s rescue will go further than that. With the aid of euro zone guarantees, the EU’s €440 billion rescue fund in Luxembourg will tap sovereign wealth funds and other investors in Asia.
Klaus Regling, head of the bailout fund, said at the weekend that he has held discussions with potential investors in Beijing. He declined to say whether China will participate but it seems clear that Ireland will be rescued in the first instance with money from very far afield.
In Le Mondeon Saturday, he also said it was important to prepare European public opinion for the notion of an Irish rescue. "I'm not talking only about Germany, but also of Finland and the Netherlands. It must be well understood that these are not transfers or donations. It's about guarantees which enable us to borrow money to lend to the country concerned." That's a key point. Ireland will receive huge loans. Unlike the unpaid banking loans that helped bring us to this place, these loans will have to be repaid. It will go on for years.