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.

Ukip's Nigel Farage and Paul Nuttall. Photo: Getty
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Is the general election 2017 the end of Ukip?

Ukip led the way to Brexit, but now the party is on less than 10 per cent in the polls. 

Ukip could be finished. Ukip has only ever had two MPs, but it held an outside influence on politics: without it, we’d probably never have had the EU referendum. But Brexit has turned Ukip into a single-issue party without an issue. Ukip’s sole remaining MP, Douglas Carswell, left the party in March 2017, and told Sky News’ Adam Boulton that there was “no point” to the party anymore. 

Not everyone in Ukip has given up, though: Nigel Farage told Peston on Sunday that Ukip “will survive”, and current leader Paul Nuttall will be contesting a seat this year. But Ukip is standing in fewer constituencies than last time thanks to a shortage of both money and people. Who benefits if Ukip is finished? It’s likely to be the Tories. 

Is Ukip finished? 

What are Ukip's poll ratings?

Ukip’s poll ratings peaked in June 2016 at 16 per cent. Since the leave campaign’s success, that has steadily declined so that Ukip is going into the 2017 general election on 4 per cent, according to the latest polls. If the polls can be trusted, that’s a serious collapse.

Can Ukip get anymore MPs?

In the 2015 general election Ukip contested nearly every seat and got 13 per cent of the vote, making it the third biggest party (although is only returned one MP). Now Ukip is reportedly struggling to find candidates and could stand in as few as 100 seats. Ukip leader Paul Nuttall will stand in Boston and Skegness, but both ex-leader Nigel Farage and donor Arron Banks have ruled themselves out of running this time.

How many members does Ukip have?

Ukip’s membership declined from 45,994 at the 2015 general election to 39,000 in 2016. That’s a worrying sign for any political party, which relies on grassroots memberships to put in the campaigning legwork.

What does Ukip's decline mean for Labour and the Conservatives? 

The rise of Ukip took votes from both the Conservatives and Labour, with a nationalist message that appealed to disaffected voters from both right and left. But the decline of Ukip only seems to be helping the Conservatives. Stephen Bush has written about how in Wales voting Ukip seems to have been a gateway drug for traditional Labour voters who are now backing the mainstream right; so the voters Ukip took from the Conservatives are reverting to the Conservatives, and the ones they took from Labour are transferring to the Conservatives too.

Ukip might be finished as an electoral force, but its influence on the rest of British politics will be felt for many years yet. 

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