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Triple trouble: Ireland prodded toward bailout, MEPs stall budget, and Greek woes worsen

eurozFaced with considerable pressure to tap into the eurozone bailout fund, Ireland seems about ready to buckle. In particular, Spain and Portugal (worried that Ireland’s troubles will spread, sending their bond yields, and thus borrowing costs, even higher) have shouted from the rooftops of the necessity for Ireland to apply for bailout funds. Although the Irish government has not yet officially made the request, the latest news is that the Irish finance minister, Brian Lenihan, has admitted that Ireland is in need of outside aid.

Considering the considerable strings attached to the bailout fund, it is not an easy thing to do for any country. For Ireland, though, it is perhaps a particularly bitter pill to swallow. Sovereignty from British rule came with a price for the Republic of Ireland, and this has not been forgotten by its politicians or its public. “It has been a very hard-won sovereignty for this country and the government is not going to give over that sovereignty to anyone”, said Irish enterprise minister Batt O’Keeffe last week, while Ireland still seemed insistent upon riding out the storm without interference.

Mind you, regardless of the bailout, Ireland will have the pleasure of welcoming officials from the ECB, IMF, European Commission troika to Dublin to oversee there austerity measures. These officials will under any circumstance have a huge say over the Irish budget, practically removing the Irish parliament from the austerity budget equation. Why not go all the way? The step to request outside assistance seems a certainty.

Even with the Irish caving in to the pressure, the EU’s problems are far from over.  EU audit figures show that Greece’s budget deficit is worse than expected. Greece’s 2009 budget deficit has been harshly adjusted upward, from of 13.6 percent of GDP to 15.5 percent, making Greece’s promise to reduce the 2010 deficit to 8.1 percent most unlikely.

In another rough patch for the EU, the European Parliament has refused to accept the 2011 budget. The collapse was due to member states skepticism of granting the EP more powers in future budget negotiations, and Dutch and British insistence upon strict austerity in the EU’s funding. Although funds will be available for priority projects, such as the bailout mechanism and the European diplomatic corps, the EEAS, the budget fight can jeopardize EU investments in peripheral economies, thus making economic recovery more difficult.  Guy Verhofstadt, leader of the Liberal group in the European Parliament, also makes the point; that if the EU’s system of national contributions was replaced with funds raised by the EU itself, debt crisis could be avoided. During the budget negotiations, the member states flat out refused to discuss the issue of an “EU tax”…   

To round off the dismal story, EU Council President Herman Van Rompuy has warned of that the debt crisis constitutes an EU “survival crisis.” “We all have to work together in order to survive with the eurozone, because if we don’t survive with the euro zone we will not survive with the European Union,” said Van Rompuy.

No matter what the short term solutions are to the current eurozone woes turn out to be, the European project faces an immense long term problem, which stems from the fact that the European economies do not drive in the same gear. While Germany is experiencing growth and worries that too much spending will cause the economic motor to overheat, peripheral economies are stagnating and are badly in need of a hot-shot. How is a common currency to be maintained in such a divergent economic zone? With this in mind, the “no euro no EU” words of Van Rompuy sound all the more serious.

 

 

Author

Finn Maigaard

Finn Maigaard holds an MA in history from the University of Copenhagen. As an MA student Finn focused on diplomatic history culminating in a thesis on US-Danish security cooperation in the Cold War. Finn also interned at the Hudson Institute's Political-Military Center, where he concentrated on the EU's role as a security institution, and at the World Affairs Institute as a Communications/Editorial Research Assistant. Finn currently resides in Washington, DC and works as a freelance writer, and as Program Coordinator at the University of Maryland's National Foreign Language Center.