ECB Sees EU Aid for Irish Banks, Fueling Bailout Bets … Ireland could use European Union aid to bail out cash-strapped banks, the European Central Bank said, stepping up pressure on the Irish government to prevent an escalation of the debt crisis that threatens the euro economy. As Ireland insisted it doesn't need handouts for its public budget, ECB Vice President Vitor Constancio said it would be able to use the emergency fund set up to support euro-area governments to recapitalize banks reeling from the bursting of the real-estate bubble. "The problems of the Irish banking sector are not only problems of liquidity but also in some cases problems of capital," Constancio said in Vienna today. While the EU rescue fund can't lend directly to banks, the Irish government can "use the money for that purpose," he said. – Bloomberg
Dominant Social Theme: There is always a way to pay down debt if you are part of the European Union. Come, let us reason together … and change the rules.
Free-Market Analysis: For months we have read in the mainstream media that Ireland has pulled together as a country and culture and that the "austerity" it was undertaking was working. Ireland was held to be increasingly solvent and the people of Ireland (in mainstream articles) were constantly lauded for their sacrifice and discipline. We, of course, wondered if and when this entirely false paradigm was going to fall apart. In fact, the Irish themselves did not pull the proverbial plug – but then they didn't have to. It became increasingly clear that the government had not cut the costs it maintained it had and that the problems with Irish banks were even worse than had been conceded.
Thus it is that the EU's "austerity" showplace – Ireland – is gradually becoming undone. And Ireland is not alone. As we were finishing this article, there were additional reports featuring Portugal's dramatically worsening economy and further tensions between Greece and Germany over Greece's eroding balance sheet. But Ireland is front-and-center today. Astonishingly, the Guardian newspaper carries the news that "Dublin has 24 hours to make decision as EU emergency talks loom amid fears Irish banks' contagion may spread to other eurozone countries."
From our point of view, some of this alarm may be manufactured to drive the European Union closer together, a strategy already enunciated by Eurocrat leaders. And one of the reasons that Irish leaders have struggled mightily not to avail themselves of the EU bailout facility (on behalf of their banks) is because it comes with significant strings attached. But apparently the Irish may have no choice. Right now, apparently, Irish bank equity is only worth two percent of what it was only two years ago. This is a staggering reversal, akin to the bankruptcy of IBM in the states or the sale of Newsweek for the proverbial dollar.
In fact, the "austerity" that the EU seeks, and certain nations are trying to provide, is likely not working very well in any of the affected countries. Greece, despite the violence of that countries protests, was supposed to have swallowed the proverbial medicine of EU austerity as well. But here is an excerpt from Yahoo.com on the continued unraveling of the Greek economy:
Greece admits breach of bailout terms as audit begins … Greece acknowledged Monday it would breach conditions for a new installment of a 110-billion-euro bailout as the IMF and European Union began an audit of the country's austerity measures. Greece's Socialist government faced a week of tough talks with its benefactors and although bolstered by sweeping successes in local elections on Sunday, the outlook is still overshadowed by gloom on the economic front.
The Eurostat statistics agency issued its final revision of Greece's accounts for the past four years, triggering a new forecast by Athens that its public deficit in 2010 would reach 9.4 percent of output … Having flirted with insolvency until it was rescued by the International Monetary Fund and EU in May, Greece on Monday sought to reassure its partners that despite the latest figures, it remained on course …
The bigger the deficit last year, the more it has to do to meet rescue conditions this year. The announcement was awaited with much concern in Greece as it may entail further deep spending cuts that have already provoked strikes and demonstrations. Greek Communists planned a protest later Monday, with private sector workers aiming to strike on December 15. – Yahoo
Is this a surprise? In fact, it is all too predictable to anyone who examines the EU – and its integrated countries – with even a little bit of skepticism. The EU is simply too big and to unwieldy to work in our humble view. It is perhaps in the protracted final stages of some sort of unacknowledged bust-up.
It doesn't help of course that the EU refuses to audit itself, and has not done so for over a decade now. The amount of institutionalized corruption must be staggering; to believe that somehow the EU's component governmental parts (like Greece or Ireland) can be responsible when the larger entity is not, provides us with a fairly unbelievable scenario.
The larger trouble of course is that only the the EU's smaller countries have unraveled yet. What about Spain, Italy and even France? The cumulative impact of so much trouble is not seen all at once, but unwinds over months and years. As we do not think the world's economy will hit bottom until Chinese inflation brings that country's economy down as well, we have a hard time believing these current EU measures will work. They may provide a temporary bandage but the bleeding will continue and the world's economic situation may eventually worsen considerably.
The problems are already baked into the EU system. The corruption is part of the process – along with the resentments it generates. One has to review the provenance of the "sovereign crisis" to see it clearly. It began when the EU wanted to embrace countries that patently had no business in the EU. That's because the EU demanded that the countries that "joined" needed to be fiscally responsible. Accordingly the EU provided funds to the various governments – and the problems were assumed to being on the way to resolution.
Only it didn't work out that way. The money basically found its way into the pockets of the national elites where is served as a kind of bribe – or was applied to useless, half-finished projects. The citizens of the PIGS (where most of the problems occurred) might not have been enthusiastic about joining the EU. But their elites, drenched in easy money, were most happy to cajole their various countries into the fold. And that was what the money was really for in our view. Thus, we have a good deal of trouble with the idea that those at the top of the pyramid did not understand what was going to happen to the EU when it experienced a downturn.
In fact, several top Eurocrats are on record as predicting that when the EU experienced a downturn the pressure for further consolidation would become significant and even impossible to resist. We have seen this to some degree already. The EU has created a fund that was supposed to recapitalize banks that had taken losses (mostly with the PIGS). But now the Eurocrats are bending the rules again, claiming that the fund can somehow be accessed by individual EU governments. This breaks a fundamental tenet of the EU organizational structure – that individual EU states, where they to get into trouble, could not be salvaged by other countries in the EU.
Inexplicably, there was never any mechanism to support troubled EU states. The idea was that once these states had received the initial funding to straighten out their books, they would keep out of trouble on their own. Again, no one actually expected this to happen. The Greeks, Italians, Spanish and even the Portuguese all had terrible governmental track records. The profligacy and waste in these countries is likely only rivaled by the EU itself. Everyone knew what was going to happen, eventually. And those at the top of the EU hoped that it would result in a "more perfect union."
Presumably, this is still the expectation, but we think the Anglo-American power elite that operates in the shadows behind the EU and the Brussels officialdom is playing a dangerous game. We think we see signs that the unrest is far more widespread than the elites expected and that the entire charade is playing out under the hot lights of the Internet's glare. In fact, the Internet itself may have provided many in Europe with confirmation of their perspective that they are being taken advantage of. There is no gratitude we can see toward the EU, nor a great deal of thankfulness for its continued expansion. Instead, there are manifestations of what we maintain may be a growing "class war."
We have pointed out regularly (in other articles) that the tribes of Europe might only tolerate the EU so long as it promised prosperity. Right now the only promise is one of prolonged austerity that may persist through generations. Again, this is bound to breed resentment and continued unrest in our view. The elites that have planned the EU and built its authoritarian infrastructure step by bloodless step no doubt expected some of what is taking place, but we see in the reactions of the various highly placed individuals a level of surprise and even desperation that indicates to us things are not firmly in hand.
The continued unraveling of Irish banks, the unsurprising continuation of Greek book-keeping difficulties are further evidences of what EU leaders will have to continue to contend with. As the elite continues to struggle with the larger economy, worldwide, and without reaching firm accommodations with the BRICs and China in particular, we think the eroding situation in Europe may weigh even more heavily.
The longer the EU's PIGS-distress continues, the more jeopardy the euro is in. The key perhaps is Germany. If Germans begin to believe in aggregate that they are continually at risk for PIGS insolvency, then the euro, at least, is in significant danger. We see no sign that any of the tribes of Europe are feeling especially pacified at the moment, and thus the threat to the Eurozone continues, and even worsens.