The bitter taste of bailout

For : Right call, even if a little late in the day

On 21 November the eurozone countries worked out a common position with the other EU members and the IMF to stave off a default that could have threatened the future of the single currency.

Faced with the Irish private-sector debt crisis, which could drag the country’s Budget and significant portions of the British and German banking sector down with it, they are going to shore up the Irish government by drawing on the stabilisation fund that was put together in the spring to handle the Greek crisis.

The terms and tenor of the new plan, however, which should run to something like €85 billion, are yet another study in brinkmanship after the 11th-hour rescue of Greece. That gives two grounds for optimism, but grounds for concern, too, about the eurozone’s future and the need for closer coordination between member states to shore up and grow the zone.

The first ground for optimism is that, despite the weakness of the European institutions and errors in charting the political course to take, the leading European nations and international institutions have succeeded, albeit in the nick of time, in sitting down with the governments in distress and finding a reasonable way out. The second positive point is that these solutions show some – albeit erratic and confused – progress towards constructing two instruments indispensable to a more structural solution to crises in the European Monetary Union: tighter fiscal coordination and more integrated financial oversight.

But these two grounds for relative optimism don’t mask the fact that European solutions systematically come late in the day and take tortuous routes. Besides increasing the financial and social costs of every economic adjustment, that goes to show that many national political leaders have failed to put across to their electorates what should be painfully obvious by now: absent economic and institutional integration, all the European countries (including France and Germany) will be condemned to playing second fiddle to the big Asian and American zones within a decade or so.

In the face of such tremendous strategic stakes, instead of rabble-rousing to “punish” reprobate member states and reckless investors to serve their own political ends on the home front, Ms Merkel and her adversaries would be better off making every effort to convince the German middle class that its future welfare is entwined with Europe’s – so its economic sway should be translated into politico-institutional sway and used to build up European cooperation.

Marcello Messori, Corriere della Sera, Milan

Translated from the Italian by Eric Rosencrantz

Against : This suits the banks

All of a sudden Josef Ackermann is a fully-fledged statesman. Over the past few days, the Deutsche Bank CEO toured Brussels, paying visits to the presidents of the European Commission and Council and to the single market commissioner. And then he said: “Europe must be kept whole and must not fall victim to short-term economic considerations.”

When the Deutsche Bank chief, who hails from Switzerland, becomes an ardent European, caution is recommended. What Ackermann is saying is clear: the EU states are to give Ireland a financial leg up. Word has it the EU and International Monetary Fund are to put €50 to €100 billion into propping up Ireland.

What Ackermann doesn’t say lies between the lines: when Europe helps Ireland, it also helps German banks. They are Ireland’s second-biggest creditors, after British banks. They have lent Ireland over €100 billion, roughly €40 billion of which went to the Irish banking sector alone.

Ireland used to be Europe’s casino. What was outlawed elsewhere was legit in Ireland. Now the big Irish banks are dependent on state aid. And the fear is gaining ground that at some point the Irish state won’t be able to hack it all – and then the creditors might have to rush in, including German banks.

The financial crisis has come round to where it all started: the banks. And they have grown cheekier. While Lehman had to go bust to prove the need for taxpayers to bail out banks, potential crises are now to be “pre-empted” by EU taxpayers. So the banks won’t be held liable for what they charge abundant interest to cover: the risk that a calamity will occur and a debtor default.

This enrages economists. Hans-Werner Sinn, director of the Munich IFO (Institute for Economic Research), sees “an axis running from the EU to the German banks to drum up support for the rescue packages for Ireland”. And yet he is positive that Ireland actually doesn’t need the aid at all. Per capita gross domestic product exceeds Germany’s by 20%, the debt ratio is manageable, even if it does go up again. “Ireland is not bankrupt.” Instead, the banks dramatized the crisis to obtain the desired political result. “It’s always the same game. This is getting boring.”

And now the German banks smell another killing to be made. If the EU gives Ireland money, it will be safer to invest all over Europe – and banks can do more business again. The powers that be are playing along and saying nothing about the banks. After all, bailing out banks isn’t very popular ever since HRE [Hypo Real Estate, German bank bailed out, then nationalised in 2009] & Co. Solidarity with Ireland is easier to sell politically than solidarity with Josef Ackermann. The bankers hype this solidarity rhetoric to the max. They talk about chain reactions and domino effects if Ireland were to fall. And paint horror scenarios of what would happen if they had to foot part of the bill to save Ireland.

Stefan Homburg, public finance expert at the University of Hannover, is convinced the fear is over the top. “What is at stake is not the existence of German banks, but write-offs they wish to prevent.” In his opinion, the top bankers have long since become more powerful than politicians – and a lot smarter.

And Homburg himself has found a way to indemnify himself as a taxpayer: during the crisis, he bought stock in the Deutsche Bank. And its value goes up every time there’s a bailout. “The profits offset the extra taxes that will be charged to save the banks.”

Lisa Nienhaus and Christian Siedenbiedel, Frankfurter Allgemeine Sonntagszeitung (extracts), Frankfurt

Translated from the German by Eric Rosencrantz