For anyone who hasn’t yet heard of the Irish economist and publisher David McWilliams, he is a generally well-regarded commentator on the economic crisis here. Apart from frequent broadcast media appearances, he has authored books and pens newspaper columns. He is widely popular and I must say that his publishers probably benefit to the tune of about €100 each year from my pocket, buying his books, book really (The Pope’s Children) as gifts. His main subject of the banking and wider economic crisis can be quite complex but in interviews, he delivers his message and responses in a clear and measured way – there are those in many sections of our society that could learn from his style of delivery. His writings tend to lift even the most casually interested to a point where they feel informed enough to hold a view. His weekly column in last week’s Sunday Business Post would be typical of the type of device employed to communicate a message. He related how the progressive lines of defence in a castle might be analogous to the risk-funding of a bank – when a bank gets into trouble, it is the shareholders that suffer first, then the subordinated bondholders etc. The last line of defence in a castle is the citadel and that’s where the depositors in a bank will barricade themselves.
And you could apply the same analogy to Europe’s defence of its currency union and regional banking system. Greece was the first line of defence and was saved and carried back to the second line of defence when the IMF and EU came to its rescue. Ireland was the second to be attacked and to fall before the bailout last November 2010. Ireland too was saved and carried along with Greece back to the third line of defence where we stand today with Greece and Portugal. It seems though as if Portugal may well succumb in the next week to the challenging reality of its national finances and will seek a bailout. Luckily Europe still has the resources to carry Greece, Ireland and Portugal back to the next line of defence which will probably be the last line of the defence, the citadel that is Spain.
Portugal is this afternoon debating in its national parliament the latest austerity budget designed to rein in its fiscal deficit. The background to Portugal’s woes is its large national debt, which has to be refinanced and its ongoing deficit which has, so far, been addressed in three austerity budgets since the global financial crisis in 2008. The fourth austerity budget, dubbed PEC 4 (Stability and Growth Programme 4) is being debated today, and the betting now is that the coalition government will not get the support it needs to pass the budget. And this comes after Portugese prime minister Jose Socrates said last week that if the budget did not pass, then he would call an election and would not attend the European summit tomorrow and Friday.
Should Portugal need to tap the IMF/EU for a bailout then there exists the funds to deal with that bailout. The ECB certainly has pockets deep enough to handle Greece, Ireland and Portugal’s bank funding issues. And the various European bailout mechanisms have the capacity to bailout Portugal, Ireland and Greece. On the other hand, Spain may well be too big and should the crisis move on to Spain next, there will be concerns that the ECB/EU bailout funds will not be big enough to handle that country’s debts. Portugal’s 10-year bond is trading today close to an all-time high of 7.6%. Both Ireland and Greece’s bonds are also up today, with Ireland’s 10-year bond having broken the 10% barrier for the first time.
UPDATE: 23rd March, 2011. With Portugal’s main opposition political party the Social Democrats set to reject the austerity budget, it is amusing to remember this exchange in the European Parliament in January 2011 between Irish MEP Joe Higgins and President of the European Commission, Portugal’s Manuel Barroso who is a, em former leader of the Social Democrats
Joe Higgins MEP : The permanent financial stability mechanism, in practice is nothing more than another tool, to cushion major European banks from the consequences of their reckless speculation on the financial markets. It is a mechanism to make working-class people throughout Europe pay pay for the crisis of a broken financial system and a crisis-ridden European capitalism. Now Messrs Van Rompuy and Barroso you tell me this morning because you haven’t done so, so far, the morality of transferring tens of billions of Euro of private bad debts of speculators and bankers gambled wildly on the Irish property market and placing those debts on the shoulders of the Irish people who carry no responsibity whatsoever for them.
Far from being a bailout, your EU/IMF intervention in Ireland is a mechanism to make vassals of the Irish taxpayers to the European banks. You are destroying our services and the living standards of our people. You claim to be democrats but you enslaved working people from Europe to the markets, the financial markets who lead you around by the nose. Now your financial stability mechanism is a vicious weapon dictated by the markets masquerading as something benign. We will insist on the Left in Ireland that it goes to a referendum by the Irish people before it is passed
Manuel Barroso, President of the European Commission: And to this distinguished member of this parliament that comes from Ireland and made a question suggesting that the problems of Ireland was created by Europe let me tell you. The problems of Ireland were created by irresponsible financial behaviour of some Irish institutions and by the lack of supervision in the Irish market. Europe is now part of the solution and is trying to support Ireland but it was not Europe that created this fiscal irresponsible situation and this financial irresponsible behaviour. And Europe is trying to support Ireland because this is important to know where the responsibility lies and this is why it is important that those of us, and it is clearly in the majority that believe in European ideals that we are able to have as much as possible to have a common response.
UPDATE: 23rd March, 2011. Austerity budget rejected by Portugese parliament. Government likely to fall with a bailout requested in coming days.
NAMA Wine Lake 