Finnegan's Take

Too many Europes

At a time when Europe is in crisis, it’s alarming to see so many conflicting statements from its leaders

EU Compeittion Commission Joaquin Almunia said today that Ireland’s bank guarantee, introduced in September 2008, was a mistake. I think you’d struggle to find an Irish person who hadn’t come to the conclusion two years ago, but it’s still interesting to hear it said.

What’s also notable is that Almunia spoke of how the guarantee, which generously promised to repay investors who had put money into the likes of (the now defunct) Anglo Irish Bank as well as guaranteeing depositors, came as a surprise to Brussels. Well, it wasn’t a surprise in Frankfurt.

I realise the EU has several institutions which are not always of one voice (to put it mildly), but it’s worth posting this clip where (then-Finance Minister) Lenihan refers to ECB chief, Jean-Claude Trichet, telling him to ‘save your banks at all costs’.

On the Sunday that the Irish government made that fateful decision in 2008, the Irish finance minister received a message from the ECB head honcho ordering him to do whatever it takes to prevent the collapse of the banks. When the ECB is propping up your banking system you are forced to listen. (Note how they have threatened to pull the plug on support for Greece’s banks if Athens defaults.)

Lenihan (who was buried this week) may have misinterpreted this in a catastrophic manner – or he may have understood it correctly, in all its catastrophic consequences. In any case, the Commission was out of the loop. Almunia – who was in charge of the Commission’s economic porfolio at the time – said the decision was sprung on the Berlaymont who were presented on Monday morning with a fait accompli. Pity Trichet didn’t have Almunia’s mobile number…

It also seems that in the run up to the bailout deal last November, Olli Rehn either fibbed to Irish politicians, officials and the public during his visit to Dublin just before the bailout was announced – or he was out of the loop. He said Ireland was facing challenges but could pull through without external help. Days later, the situation had changed radically. I think he was probably out of the loop and the ECB was calling the shots, but it still looks bad.

Mixed signals

Meanwhile, if you enjoy seeing Brussels sending mixed signals, you’ll love Friday’s comments on the current Irish banking strategy. The government has decided to have two “pillar banks” (AIB and BOI). What does Europe think?

Van Rompuy said on Friday: “I appreciate the carefully thought out plan which will deliver a smaller and more solid banking sector, fit for the needs of the Irish economy.”

Thanks Herman, appreciate the support. But wait, what’s this?

European Commissioner for Competition (and Olli Rehn’s predecessor in the economic job) said on Friday that he thinks the plan for two banks could run afoul of EU competition law: It will create, he said, “a de facto duopoly in the Irish market“.

And let’s not get started on who is and is not in favour of reducing the interest rate Ireland pays on the bailout loans…

(Hint: The Commission is in favour and the President of the European Council is in favour. The Chair of the European Parliament’s Economic and Monetary Affairs Committee is in favour. The IMF has no problem. The Élysée is not so keen.)

Now, can anyone tell me why the evil markets don’t trust Europe to agree a clear way out of the Greece tragedy?

[Gag of the day: “This Greece debt story is complicated – can anyone explain it in Lehman’s terms?” You’re welcome.]

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