From a steady drip, coverage of the European debt crisis has become a torrent. With protests against spending cuts happening from Dublin to Madrid to Athens over the last couple of years, even the National Governments seem to believe that public spending is being reined in; it isn’t.
Since the Nationalisation of Bankia the other week the Spanish Premier Mariano Rajoy has been lobbying for European rescue funds to be allowed to directly recapitalise ailing banks. And so the Government-bank-Government cycle of debt accumulation will continue, because no one has the cojones to face up to the fact that the Spanish property bubble has burst.
As a result Spain’s crippling borrowing costs will likely not come down. Is it any surprise then that Spain’s 2011 deficit figures have been revised up to a whopping 8.9 %? Apparently all is well however since EU finance minister Oli Rehn has announced that Spain will be given an extra year to bring its budget deficit down, to a still mammoth, 5.3%, saying, “We are ready to propose an extension of the excessive deficit procedure deadline by one year to 2014.” This kind of brinkmanship will not engender confidence in Spain’s ability to cut its cloth according to its means, but who really ever believed it could anyway?
What Europe needs, in spades, is a move away from the sclerotic dirigisme of remote, centralised EU governance. Unfortunately it seems for the moment the opposite is likely to happen. Today Ireland is going to the polls to vote on the EU fiscal treaty. The treaty will allow direct imposition of spending controls on EU national budgets, which surely represents the final destruction of their already limited sovereignty? The Irish will vote yes to the treaty but it wouldn’t matter if they didn’t, it will be ratified anyway; there is no democracy in the EU.
Even if the strictures of the treaty are faithfully adhered to, and we know they won’t be, the long-term influence on Ireland could be disastrous. Fiscal union will lead to tax “harmonisation” and will rob any state the ability to compete, as Ireland has, by offering low corporate tax rates. The Celtic Tiger will become extinct, whilst EU budgets and spending will continue to increase.