Ireland is not Greece

Mario Draghi, the new president of the European Central Bank, having taken over from Jean-Claude Trichet, has put the current debate about the possibility of Ireland getting a discount on the financial responsibilities it has assumed for the debts of its banks nicely into context.

We are indebted to Laura Noonan of the Irish Independent for asking the question, at Draghi’s first regular monthly press conference as ECB president, as to whether or not the Greek example, where banks with exposure to Greek sovereign debt have been persuaded to take a write-down of 50%, could be used as a precedent for Ireland. His answer was as follows:

“One has to keep in mind that the Greek situation is exceptional and unique - and unique. The sovereign signature, in spite of the recent turmoil, remains a pillar of financial stability, in the Euro zone and in the rest of the world. We are confident that the Irish government could comply with the measures announced, and the Irish government itself said it will do whatever it takes. So one has no reason to doubt about the commitment of the government”

In other words, Ireland has the opportunity to make a serious and very valuable contribution to resolving the current crisis in the Euro zone, and in so doing reassume its position as a member of the core, committed group of European Union member states. It can do this by reinforcing the value that has always been placed on a guarantee by a sovereign state, and in this case one that also happens to be part of the Euro zone. Greece’s misfortune is not that it does not want to do this; it is that it cannot.

Those of the Irish political opposition who are calling for a unilateral default by the government, whether it’s on Anglo Irish bank bonds or on Irish sovereign debt, either do not understand the consequences of what they call for or, much worse, are prepared to cause serious if not fatal damage to the European project, of which the Euro currency is a major component. Theirs is a desire to achieve a short term gain at a cost that represents extremely serious long-term damage. This damage is not even related to the regard or otherwise in which we would be held by our fellow Europeans, but rather to what would result from a grave setback to, or failure of, the European Union. See this previous StackSix entry to get a sense of the material significance of the EU to Ireland.

The historical, political and philosophical importance of it goes much, much deeper than that.

Also see this Financial Times article on "Why it's worth keeping the EU dream alive". Then read the comments for a lively debate on the issue.

A Greek silver lining

It seems possible that the US dollar might have reversed its long slide in value against the Euro. Greece, a Eurozone member, is in the news because of public unrest against austerity measures, after seriously blotting its copybook previously by falsifying data sent to the European Central Bank (ECB) and other authorities. This has adversely affected the Euro because of worries that a constituent country might be setting itself up for default on its sovereign debt.

But, of course, a lower rate of exchange for the European currency is a good thing. It makes European exports to the world’s largest consumer economy, the USA, easier. It makes imports, not just from the US but from many other countries, such as China, whose currency is pegged to the dollar, less attractive.

A decline in the Euro against Sterling will discourage shopping trips to Newry and will mean that Irish consumers will spend more at home.

Notwithstanding the perfidy of the Greek Department of Finance, there is little real fear that Greece will, or will be allowed to, default on its commitments to the extent that the whole European monetary system is irrevocably damaged. In the meantime it is possible that Hellenic fiscal management misdemeanours might have provided something of a silver lining for the other members of the Euro club.