Herman Van Rompuy issued his warning ahead of today’s meeting with his fellow eurozone ministers, in which they’ll discuss the mounting debt crisis in the region and the increasingly imminent effluent/fan interaction scenario it threatens. The gang not only have Ireland to discuss, but rising panic around Portugal, which has said it’s close to the edge and may be forced to ask for the help Ireland’s refusing.
Indeed, Ireland is remaining resolute that it doesn’t need the aid that the EU is determined to dish out. This has led many to suspect a game of brinkmanship on the part of the Irish: resisting the fiscal approach long enough for the eurozone leaders to get so nervous of the possible fall-out that they waive its more punitive terms – i.e. forcing Ireland to ditch its very friendly rate of corporation tax.
The question is whether Ireland really could survive without a handout. The Irish finance minister Brian Lenihan reckons so, saying that his government will continue with unprecedented cuts totalling 6bn euros, to reduce the budget deficit from about 12% to a possible 9.75% next year. Never mind the recession that threatens.
He also said he hoped there would be ‘solidarity’ from European colleagues at the Brussels meeting. He’ll be lucky. Portugal's finance minister Fernando Teixeira dos Santos has urged Dublin to do the right thing for the euro and take the money. Meanwhile Spain's central bank governor, Miguel Angel Ordonez, called on the Irish government yesterday to take the ‘proper decision’ and end the panic – not least because it’s starting to affect their attempts to raise money themselves.
The key lies with the European Central Bank, which has kept Ireland solvent by propping up its banking system with loans it would’ve been hard pushed to get anywhere else. Should the ECB decide to be less sympathetic and pull the plug, the Irish would have to accept a hand-out from the EU or IMF.
But still Ireland hangs in there, reassuring everyone that it’s ‘fully funded’ until late 2011. The trouble is it’s not alone. Greece has been limping for ages, and is getting worse, and now Portugal is being infected by the contagion. If that spreads to Spain, which has an economy much larger than the other three combined yet is also riddled with debt, then things will get properly hairy.
You could of course point to Spain’s public debt and point out that it’s ‘just’ 66% of its GDP. What are they worried about? They’re positively minted…