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.

News
Actor Burt Reynolds last year
peopleBurt Reynolds, once among the most bankable actors in Hollywood, is set to auction his memorabilia
News
Gordon and Tana Ramsay arrive at the High Court, London
newsTV chef gives evidence against his father-in-law in court case
News
people

Watch the spoof Thanksgiving segment filmed for Live!
News
The data shows that the number of “unlawfully” large infant classes has doubled in the last 12 months alone
i100Mike Stuchbery, a teacher in Great Yarmouth, said he received abuse
PROMOTED VIDEO
Arts and Entertainment
The starship in Star Wars: The Force Awakens
filmsThe first glimpse of JJ Abrams' new film has been released online
Arts and Entertainment
The cover of The Guest Cat – expect to see it everywhere
books
News
i100 Charity collates series of videos that show acts of kindness to animals
Arts and Entertainment
One of the installations in the Reiner Ruthenbeck exhibition at the Serpentine Gallery
artCritics defend Reiner Ruthenbeck's 'Overturned Furniture'
News
ebooksNow available in paperback
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

Austen Lloyd: Company Secretary

Excellent Package: Austen Lloyd: EAST ANGLIA - SENIOR SOLICITOR LEVEL ROLE** -...

Citifocus Ltd: German Speaking Client Specialist

£Attractive Package: Citifocus Ltd: Prestigious asset management house seeks a...

Citifocus Ltd: Performance & Risk Oversight

£Negotiable: Citifocus Ltd: This is a varied role focusing on the firm's mutua...

h2 Recruit Ltd: Sales Director - SaaS (SME/Channel) - £140,000 OTE

£90000 - £140000 per annum + benefits: h2 Recruit Ltd: Are you a high achievin...

Day In a Page

Homeless Veterans Christmas Appeal: ‘We give them hope. They come to us when no one else can help’

Christmas Appeal

Meet the charity giving homeless veterans hope – and who they turn to when no one else can help
Should doctors and patients learn to plan humane, happier endings rather than trying to prolong life?

Is it always right to try to prolong life?

Most of us would prefer to die in our own beds, with our families beside us. But, as a GP, Margaret McCartney sees too many end their days in a medicalised battle
Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night - is that what it takes for women to get to the top?

What does it take for women to get to the top?

Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night and told women they had to do more if they wanted to get on
Christmas jumper craze: Inside the UK factory behind this year's multicultural must-have

Knitting pretty: British Christmas Jumpers

Simmy Richman visits Jack Masters, the company behind this year's multicultural must-have
French chefs have launched a campaign to end violence in kitchens - should British restaurants follow suit?

French chefs campaign against bullying

A group of top chefs signed a manifesto against violence in kitchens following the sacking of a chef at a Paris restaurant for scalding his kitchen assistant with a white-hot spoon
Radio 4 to broadcast 10-hour War and Peace on New Year's Day as Controller warns of cuts

Just what you need on a New Year hangover...

Radio 4 to broadcast 10-hour adaptation of War and Peace on first day of 2015
Cuba set to stage its first US musical in 50 years

Cuba to stage first US musical in 50 years

Claire Allfree finds out if the new production of Rent will hit the right note in Havana
Christmas 2014: 10 best educational toys

Learn and play: 10 best educational toys

Of course you want them to have fun, but even better if they can learn at the same time
Paul Scholes column: I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season

Paul Scholes column

I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season
Lewis Moody column: Stuart Lancaster has made all the right calls – now England must deliver

Lewis Moody: Lancaster has made all the right calls – now England must deliver

So what must the red-rose do differently? They have to take the points on offer 
Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

It's in all our interests to look after servicemen and women who fall on hard times, say party leaders
Millionaire Sol Campbell wades into wealthy backlash against Labour's mansion tax

Sol Campbell cries foul at Labour's mansion tax

The former England defender joins Myleene Klass, Griff Rhys Jones and Melvyn Bragg in criticising proposals
Nicolas Sarkozy returns: The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?

Sarkozy returns

The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?
Is the criticism of Ed Miliband a coded form of anti-Semitism?

Is the criticism of Miliband anti-Semitic?

Attacks on the Labour leader have coalesced around a sense that he is different, weird, a man apart. But is the criticism more sinister?
Ouija boards are the must-have gift this Christmas, fuelled by a schlock horror film

Ouija boards are the must-have festive gift

Simon Usborne explores the appeal - and mysteries - of a century-old parlour game