David Prosser: Ireland's sacrifice may well sink the eurozone, not save it

The EU cannot deal with Spain: its sovereign debt totals around €560bn, around €30bn more than Greece, Ireland and Portugal combined

For a moment yesterday morning, it looked as if the announcement of a bail-out for Ireland had impressed the markets: share prices began rising, the euro strengthened and government bond yields eased. Sadly, the respite proved strictly short-lived: by lunchtime, all three trends had reversed.

No wonder. Those in Brussels who bullied the Irish into accepting a rescue they would not have needed, had Germany not stoked up this crisis with its calls three weeks ago for a new financial restructuring deal, have added error on error. Rather than drawing a line under the crisis, the bail-out of Ireland will make it tougher to prevent a disastrous domino effect.

José Socrates, the Portuguese Prime Minister, toured the television studios yesterday, insisting his country does not need a bail-out. His arguments are logical: Portugal's banks are better funded than those of Ireland, its property sector less bombed-out and its public finances more secure.

To which the markets' reaction can be broadly characterised as "so what?" Portugal's efforts to bring its deficit down have yet to convince those who buy and sell its debts. And with a major fund-raising exercise due next April, it is running out of time to secure the markets' confidence. Its bond yields remain sky-high and money continues to flow out of the country. By accepting that the markets' demands for assistance for Ireland made a bail-out inevitable, the EU has condemned Portugal to the same fate. There may be no obvious trigger – though January's public finance data may show Portugal has missed its 2010 target for deficit reduction – but nor was there for Ireland. Greece and Ireland dealt with, Portugal is simply the next target. Then it is the big one: Spain. And while the first three are manageable rescues for the EU, Spain is not. The rescue facility set up by the European Union is not of sufficient scale to deal with a Spanish crisis. Its sovereign debt, for the record, totals around €560bn (£478bn), around €30bn more than Greece, Ireland and Portugal combined.

The thinking in Brussels may be that while the markets are focused on knocking off these smallertargets one by one, the bigger fish are getting a little more time to sort themselves out. In other words, that Spain's finances will be sufficiently robust to stand up to scrutiny by the time the scrutineers arrive. Even leaving aside the questionable moral and political justifications for sacrificing countries such as Ireland in this way, this is an unprecedented economic gamble.

Meanwhile, the denials of political reality continue. The bail-out of Greece underlined the weakness of the single currency project: that the bill for fiscal irresponsibility by one member of the zone has to be paid by everyone else. Ireland emphasises the point once more. Yet having forced the Irish into this deal, it is clear that the EU is struggling to extract much in the way of fiscal reform in return – even on the notorious 12.5 per cent rate of corporation tax.

As a result, one of the mostsurreal aspects of this bail-out will be that European taxpayers are being asked to subsidise tax rates in Ireland that are set so low they have robbed those same taxpayers of jobs and wealth.



Little time left for a deal on bank reform

What are we going to do about banking regulation? The mini spat that broke out yesterday between George Osborne and Vince Cable over disclosure of bankers' pay will have been noted by those who expect the two men to eventually fall out irreparably over the banks. But the wider story is that the international will to regulate the sector more closely is dissipating by the day.

It is true we have a deal, courtesy of the Basel III agreement, on capital funding. But on almost every other aspect of banking regulation, the collective determination for improvements that was so in evidence in the immediate aftermath of the financial crisis is now almost impossible to find.

The lack of international agreement on how best to regulate the banks mirrors the economic infighting within the G20. At the height of the crisis, countries put their differences aside simply to keep the economic show on the road. Two years on, those differences have resurfaced and appear to have magnified.

Even if one suspects that George Osborne is, by instinct, less enthusiastic than some about holding bankers to account, it has to be acknowledged that the lack of international agreement on regulation leaves him with a quandary.

We should not be unduly cowed by the banks' thinly veiled threats to quit the UK. But, logically, there must be tipping points: reforms that would leave the UK so out of step with other jurisdictions that banks really would begin to depart.

The difficulty for the Chancellor is that this is not a level playing field. The UK, as one of the world's top three financial centres, has more to lose than most from getting financial regulation wrong. It is in the interests of many of our rivals to sit on their hands. As their banks are of less importance to their economies, their need to supervise them more closely is less pressing. And if one side-effect of this is that Britain's banks begin thinking about relocating to their shores, so much the better.

The issue of how much detail banks should be forced to make public about their biggest earners seems less likely to represent a tipping point than taxation, where Mr Osborne has already begun to hint that he now plans to scale back the new duties the banks will have to pay. But the principle is the same. The G20's members are increasingly focused on their own narrow national interests, rather than a co-ordinated response. Time is rapidly running out for an international deal on banking regulation. And Britain can do only so much on a unilateral basis.

PROMOTED VIDEO
Life and Style
Sainsbury's could roll the lorries out across its whole fleet if they are successful
tech
Arts and Entertainment
tv
Sport
Ojo Onaolapo celebrates winning the bronze medal
commonwealth games
Arts and Entertainment
Rock band Led Zeppelin in the early 1970s
musicLed Zeppelin to release alternative Stairway To Heaven after 43 years
Arts and Entertainment
Tracey Emin's 'My Bed' is returning to the Tate more than 15 years after it first caused shockwaves at the gallery
artTracey Emin's bed returns to the Tate after record sale
Environment
Neil Young performing at Hyde Park, London, earlier this month
environment
News
i100
News
ebookA unique anthology of reporting and analysis of a crucial period of history
News
Prince Harry is clearing enjoying the Commonwealth Games judging by this photo
people(a real one this time)
Sport
Lionel Messi looks on at the end of the final
football
Extras
indybest
News
Richard Norris in GQ
mediaGQ features photo shoot with man who underwent full face transplant
News
Gardai wait for the naked man, who had gone for a skinny dip in Belfast Lough
newsTwo skinny dippers threatened with inclusion on sex offenders’ register as naturists criminalised
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Project Manager (HR)- Bristol - Upto £400 p/day

£350 - £400 per annum + competitive: Orgtel: Project Manager (specializing in ...

Graduate / Trainee Recruitment Consultant - IT

£25000 per annum + OTE £40,000: SThree: Orgtel are seeking Graduate Trainee Re...

HR Business Partner - Banking Finance - Brentwood - £45K

£45000 per annum + Benefits: Ashdown Group: ** HR Business Partner - Senior H...

PA / Team Secretary - Wimbledon

£28000 - £32000 per annum + Benefits: Ashdown Group: PA / Team Secretary - Mat...

Day In a Page

Save the tiger: The animals bred for bones on China’s tiger farms

The animals bred for bones on China’s tiger farms

The big cats kept in captivity to perform for paying audiences and then, when dead, their bodies used to fortify wine
A former custard factory, a Midlands bog and a Leeds cemetery all included in top 50 hidden spots in the UK

A former custard factory, a Midlands bog and a Leeds cemetery

Introducing the top 50 hidden spots in Britain
Ebola epidemic: Plagued by fear

Ebola epidemic: Plagued by fear

How a disease that has claimed fewer than 2,000 victims in its history has earned a place in the darkest corner of the public's imagination
The children were playing in the street with toy guns. The air strikes were tragically real

The air strikes were tragically real

The children were playing in the street with toy guns
Boozy, ignorant, intolerant, but very polite – The British, as others see us

Britain as others see us

Boozy, ignorant, intolerant, but very polite
Countries that don’t survey their tigers risk losing them altogether

Countries that don’t survey their tigers risk losing them

Jonathon Porritt sounds the alarm
How did our legends really begin?

How did our legends really begin?

Applying the theory of evolution to the world's many mythologies
Watch out: Lambrusco is back on the menu

Lambrusco is back on the menu

Naff Seventies corner-shop staple is this year's Aperol Spritz
A new Russian revolution: Cracks start to appear in Putin’s Kremlin power bloc

A new Russian revolution

Cracks start to appear in Putin’s Kremlin power bloc
Eugene de Kock: Apartheid’s sadistic killer that his country cannot forgive

Apartheid’s sadistic killer that his country cannot forgive

The debate rages in South Africa over whether Eugene de Kock should ever be released from jail
Standing my ground: If sitting is bad for your health, what happens when you stay on your feet for a whole month?

Standing my ground

If sitting is bad for your health, what happens when you stay on your feet for a whole month?
Commonwealth Games 2014: Dai Greene prays for chance to rebuild after injury agony

Greene prays for chance to rebuild after injury agony

Welsh hurdler was World, European and Commonwealth champion, but then the injuries crept in
Israel-Gaza conflict: Secret report helps Israelis to hide facts

Patrick Cockburn: Secret report helps Israel to hide facts

The slickness of Israel's spokesmen is rooted in directions set down by pollster Frank Luntz
The man who dared to go on holiday

The man who dared to go on holiday

New York's mayor has taken a vacation - in a nation that has still to enforce paid leave, it caused quite a stir, reports Rupert Cornwell