After Portugal, what next?

The EU’s bailout fund should not make billions from member states’ misery.

EU leaders have just agreed a treaty change to create a permanent European Stability Mechanism to protect the eurozone – a European Monetary Fund in all but name.

The details about the fund, its lending capacity and the way it will work in practice are hazy, though leaked documents from the European Council indicate that it will have a range of financial instruments at its disposal. Given that the banks of just three EU countries – Britain, France and Germany – are exposed to over €1trn of government debt, were a country like Italy or Spain to face a Greek- or Irish-style crisis, it is questionable whether the fund would be sufficient.

The new mechanism will not help Portugal if, following the collapse of the Socialist government orchestrated by the opposition Conservatives, the country has to seek an EU bailout. But we can safely assume that should Portugal or other countries face the economic abyss, as Greece and Ireland did in 2010 (and still face), they will not be charged such punitive interest rates.

At last week's summit the Greek government was given a 1 per cent cut in the interest it will have to pay back. It will pay back its €130bn loan at just over 4 per cent, and be given seven years to pay back its debts.

Ireland was not treated so kindly. After being forced to take a €80bn loan at 6 per cent last December, the new Fine Gael/Labour government, which was elected with a mandate to renegotiate the terms of the loan, was offered a 1 per cent cut. Quite rightly, the new Taoiseach, Enda Kenny, told the summit, dominated by Germany and France, where to stick their offer.

Sub-prime cuts

What the likes of Germany and France have not grasped is that the crises in Greece and Ireland are fundamentally different. Greece faced economic meltdown when the incoming Socialist government found that its predecessors had cooked the books on an impressive scale.

The country's budget deficit was over 12 per cent – not the 3.7 per cent announced by the previous government. Market speculation, combined with the fact that Greek productivity had declined by 50 per cent compared to Germany in a decade, and a system which allowed massive tax evasion, brought the country to its knees.

Ireland's case is different. Like Britain and the US, its housing market boomed and then suddenly burst when the sub-prime crisis hit, and its banks needed huge taxpayer bailouts to stay afloat. Unlike Britain and the US, the biggest Irish banks – Anglo-Irish and Ulster Bank – were still too broke to function. A second vast taxpayer bailout and a disastrous austerity budget (George Osborne, take note) pushed Ireland's deficit to a whopping 32 per cent of GDP.

However, unlike Greece, Ireland never asked for a bailout. It was strong-armed into accepting one. The truth is that it would be economically logical for Ireland to have allowed its banks to default. Many banks would have lost billions – RBS would have lost £40bn, and Deutsche Bank a similar sum – but Irish taxpayers would not have been saddled with paying back €80bn at a 6 per cent interest rate. As it stands, it may well take a generation for the Irish to recover.

There's profit to be made . . .

It is outrageous that, in their dealings with the Irish, EU countries have behaved like the investment banks for which they blamed the financial crisis. For example, the UK Treasury stands to rake in £475m from its £7bn loan to the Irish, and it is far from the worst offender.

If the euro is to survive, this "beggar thy neighbour" approach will have to stop. If not, the stark reality is that the gap between rich and poor nations in the eurozone will get wider and the single currency will collapse. European economic and monetary union cannot survive if its member states seek to make huge profits from another's misery.

The reality is that, while the Fianna Fail government allowed an unsustainable housing boom and reckless investments by its financial sector, Ireland is not solely to blame for the mess it finds itself in. A right-wing "Franco-German" alliance may be dictating austerity cuts and claiming that the crisis must lead to radical pension and wage reform, but it needs to learn a few home truths.

For example, were Spain to go bust, the French and German governments would have to make huge bailouts of their banks. Besides, by keeping wage levels artificially low to stifle domestic consumption, Germany has helped preserve its already vast trade surplus while also preventing other EU countries from exporting their way out of difficulty.

So Ireland, embattled as it may be, has a stronger hand than you might think. So might Portugal and others. If its demand for a loan at reasonable rates is rejected, Ireland could turn around and allow Anglo-Irish, which the new government intends to liquidate anyway, to default.

That would be the move of last resort, but it would at last challenge the arrogance and complacency of the "Franco-German" alliance, which ignores the debt exposure of its own financial sector, and has the temerity to try to impose its will on the rest of Europe.

Ben Fox is political adviser to the Socialist and Democrat group in the European Parliament.

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A swimming pool and a bleeding toe put my medical competency in doubt

Doctors are used to contending with Google. Sometimes the search engine wins. 

The brutal heatwave affecting southern Europe this summer has become known among locals as “Lucifer”. Having just returned from Italy, I fully understand the nickname. An early excursion caused the beginnings of sunstroke, so we abandoned plans to explore the cultural heritage of the Amalfi region and strayed no further than five metres from the hotel pool for the rest of the week.

The children were delighted, particularly my 12-year-old stepdaughter, Gracie, who proceeded to spend hours at a time playing in the water. Towelling herself after one long session, she noticed something odd.

“What’s happened there?” she asked, holding her foot aloft in front of my face.

I inspected the proffered appendage: on the underside of her big toe was an oblong area of glistening red flesh that looked like a chunk of raw steak.

“Did you injure it?”

She shook her head. “It doesn’t hurt at all.”

I shrugged and said she must have grazed it. She wasn’t convinced, pointing out that she would remember if she had done that. She has great faith in plasters, though, and once it was dressed she forgot all about it. I dismissed it, too, assuming it was one of those things.

By the end of the next day, the pulp on the underside of all of her toes looked the same. As the doctor in the family, I felt under some pressure to come up with an explanation. I made up something about burns from the hot paving slabs around the pool. Gracie didn’t say as much, but her look suggested a dawning scepticism over my claims to hold a medical degree.

The next day, Gracie and her new-found holiday playmate, Eve, abruptly terminated a marathon piggy-in-the-middle session in the pool with Eve’s dad. “Our feet are bleeding,” they announced, somewhat incredulously. Sure enough, bright-red blood was flowing, apparently painlessly, from the bottoms of their big toes.

Doctors are used to contending with Google. Often, what patients discover on the internet causes them undue alarm, and our role is to provide context and reassurance. But not infrequently, people come across information that outstrips our knowledge. On my return from our room with fresh supplies of plasters, my wife looked up from her sun lounger with an air of quiet amusement.

“It’s called ‘pool toe’,” she said, handing me her iPhone. The page she had tracked down described the girls’ situation exactly: friction burns, most commonly seen in children, caused by repetitive hopping about on the abrasive floors of swimming pools. Doctors practising in hot countries must see it all the time. I doubt it presents often to British GPs.

I remained puzzled about the lack of pain. The injuries looked bad, but neither Gracie nor Eve was particularly bothered. Here the internet drew a blank, but I suspect it has to do with the “pruning” of our skin that we’re all familiar with after a soak in the bath. This only occurs over the pulps of our fingers and toes. It was once thought to be caused by water diffusing into skin cells, making them swell, but the truth is far more fascinating.

The wrinkling is an active process, triggered by immersion, in which the blood supply to the pulp regions is switched off, causing the skin there to shrink and pucker. This creates the biological equivalent of tyre treads on our fingers and toes and markedly improves our grip – of great evolutionary advantage when grasping slippery fish in a river, or if trying to maintain balance on slick wet rocks.

The flip side of this is much greater friction, leading to abrasion of the skin through repeated micro-trauma. And the lack of blood flow causes nerves to shut down, depriving us of the pain that would otherwise alert us to the ongoing tissue damage. An adaptation that helped our ancestors hunt in rivers proves considerably less use on a modern summer holiday.

I may not have seen much of the local heritage, but the trip to Italy taught me something new all the same. 

This article first appeared in the 17 August 2017 issue of the New Statesman, Trump goes nuclear