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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Is defeat in Stoke the beginning of the end for Paul Nuttall?

The Ukip leader was his party's unity candidate. But after his defeat in Stoke, the old divisions are beginning to show again

In a speech to Ukip’s spring conference in Bolton on February 17, the party’s once and probably future leader Nigel Farage laid down the gauntlet for his successor, Paul Nuttall. Stoke’s by-election was “fundamental” to the future of the party – and Nuttall had to win.
 
One week on, Nuttall has failed that test miserably and thrown the fundamental questions hanging over Ukip’s future into harsh relief. 

For all his bullish talk of supplanting Labour in its industrial heartlands, the Ukip leader only managed to increase the party’s vote share by 2.2 percentage points on 2015. This paltry increase came despite Stoke’s 70 per cent Brexit majority, and a media narrative that was, until the revelations around Nuttall and Hillsborough, talking the party’s chances up.
 
So what now for Nuttall? There is, for the time being, little chance of him resigning – and, in truth, few inside Ukip expected him to win. Nuttall was relying on two well-rehearsed lines as get-out-of-jail free cards very early on in the campaign. 

The first was that the seat was a lowly 72 on Ukip’s target list. The second was that he had been leader of party whose image had been tarnished by infighting both figurative and literal for all of 12 weeks – the real work of his project had yet to begin. 

The chances of that project ever succeeding were modest at the very best. After yesterday’s defeat, it looks even more unlikely. Nuttall had originally stated his intention to run in the likely by-election in Leigh, Greater Manchester, when Andy Burnham wins the Greater Manchester metro mayoralty as is expected in May (Wigan, the borough of which Leigh is part, voted 64 per cent for Brexit).

If he goes ahead and stands – which he may well do – he will have to overturn a Labour majority of over 14,000. That, even before the unedifying row over the veracity of his Hillsborough recollections, was always going to be a big challenge. If he goes for it and loses, his leadership – predicated as it is on his supposed ability to win votes in the north - will be dead in the water. 

Nuttall is not entirely to blame, but he is a big part of Ukip’s problem. I visited Stoke the day before The Guardian published its initial report on Nuttall’s Hillsborough claims, and even then Nuttall’s campaign manager admitted that he was unlikely to convince the “hard core” of Conservative voters to back him. 

There are manifold reasons for this, but chief among them is that Nuttall, despite his newfound love of tweed, is no Nigel Farage. Not only does he lack his name recognition and box office appeal, but the sad truth is that the Tory voters Ukip need to attract are much less likely to vote for a party led by a Scouser whose platform consists of reassuring working-class voters their NHS and benefits are safe.
 
It is Farage and his allies – most notably the party’s main donor Arron Banks – who hold the most power over Nuttall’s future. Banks, who Nuttall publicly disowned as a non-member after he said he was “sick to death” of people “milking” the Hillsborough disaster, said on the eve of the Stoke poll that Ukip had to “remain radical” if it wanted to keep receiving his money. Farage himself has said the party’s campaign ought to have been “clearer” on immigration. 

Senior party figures are already briefing against Nuttall and his team in the Telegraph, whose proprietors are chummy with the beer-swilling Farage-Banks axis. They deride him for his efforts to turn Ukip into “NiceKip” or “Nukip” in order to appeal to more women voters, and for the heavy-handedness of his pitch to Labour voters (“There were times when I wondered whether I’ve got a purple rosette or a red one on”, one told the paper). 

It is Nuttall’s policy advisers - the anti-Farage awkward squad of Suzanne Evans, MEP Patrick O’Flynn (who famously branded Farage "snarling, thin-skinned and aggressive") and former leadership candidate Lisa Duffy – come in for the harshest criticism. Herein lies the leader's almost impossible task. Despite having pitched to members as a unity candidate, the two sides’ visions for Ukip are irreconcilable – one urges him to emulate Trump (who Nuttall says he would not have voted for), and the other urges a more moderate tack. 

Endorsing his leader on Question Time last night, Ukip’s sole MP Douglas Carswell blamed the legacy of the party’s Tea Party-inspired 2015 general election campaign, which saw Farage complain about foreigners with HIV using the NHS in ITV’s leaders debate, for the party’s poor performance in Stoke. Others, such as MEP Bill Etheridge, say precisely the opposite – that Nuttall must be more like Farage. 

Neither side has yet called for Nuttall’s head. He insists he is “not going anywhere”. With his febrile party no stranger to abortive coup and counter-coup, he is unlikely to be the one who has the final say.