The limits of sovereignty

Late tonight ( October 1st), the affair shows the limits of sovereignty but in a way that leaves Irish self-interest and national pride intact. It’s not a bad way to have your cake and eat it either. Ireland is being forced to extend rather than limit its full deposit guarantee scheme by including “foreign owned” banks that are well-known fixtures in Ireland like Ulster Bank and National Irish Bank. With such a huge guarantee scheme, nearly half as big again at GDP, sure why not invite in oul’ friends, a couple more’ll hardly make much of a difference? This may be Dublin’s “get out of jail” card to avoid a wrangle with the EU Commission which I nevertheless still think is shadow boxing in the light of the scale of the crisis. British pressure should now ease, as the BBC reports “there were no obvious signs of savers flocking to banks such as the Allied Irish Bank in the UK.” After three days of high anxiety and as the Oireachtas sits into the night, members should take comfort that they’re performing an awful lot better than the US political system – while at the same time – getting the Brits off their backs by inviting some of them into the house. Now that’s what I call good Anglo-Irish relations. Ireland interdependent yet independent, striking out it’s own course again but less perversely than over the Lisbon Treaty. It’s an episode that will live in history.

  • Dave

    “It’s an episode that will live in history.”

    It’ll live in infamy, anyway. The day when one generation mortgaged future generations, shifting the burden of responsibility for their own financial misadventures onto them. Irish government is run by mediocre hacks and gombeens and sons of former mediocre hacks and gombeens (step up Cowen and Lenihan).

    With a bit of luck, a foreign bank that is underwritten by the Irish taxpayer is the first to fail. We’ll see then how pro-EU the Irish are when they are forced to pay more taxes in order to make good on the free insurance policy for bad management and bad debts that they have issued to these private businesses.

    In the meantime, they may try to join the dots between cheap credit, the agency that set the rates at which it was proffered, rapid house price inflation, loss of sovereignty over monetary policy, and the devastating effects it has had on the Irish economy i.e. the EU’s ECB.

  • DC

    Dave, fancy seeing you here, this one is for you, off BBC website:

    “The world today looks more like that of the 19th Century than like that of the late 20th.

    “Those who imagine this is good news should recall that the 19th Century order did not end as well as the Cold War did.”

    “To avoid such a fate, the United States and other democratic nations will need to take a more enlightened and generous view of their interests than they did even during the Cold War. The United States, as the strongest democracy, should not oppose but welcome a world of pooled and diminished national sovereignty.

  • cynic

    Great move by the Irish Government …..but will they take any compensating measures to stop the foreign banks exporting the risk to their Irish subsiduaries?

    I dont suspect that our UK cousins would try it or get away with it, but what about the Americans, for example? Lehman is a classic case where, realising they were going to collapse, they repatriated all cash (just £8bn in the UK alone) to the good ol’ USA for the benefit of creditors and staff there.

  • Briso

    Brian wrote:
    the BBC reports “there were no obvious signs of savers flocking to banks such as the Allied Irish Bank in the UK.”

    http://www.irishtimes.com/newspaper/frontpage/2008/1002/1222815461292.html
    ILP rose the most, climbing 13.6 per cent. Chief executive Denis Casey said the banks could borrow more cheaply with the guarantee, which had opened up the “oxygen supply” of funding to the Irish banks again.

    The guaranteed banks received inflows of deposits from the UK, with one Irish bank receiving a single corporate deposit of €500 million after the guarantee was announced.

  • Suilven

    Erm, did I imagine it, Brian, or your first stab at this article (put up late last night) witter on about how you could see nothing protectionist about what the Irish were up to. Then lo and behold, this morning Lenihan’s being forced to address the protectionist aspects of this deal…

  • Suilven

    That should be “or did your first stab at this article”

  • Nestor Makhno

    Dave With a bit of luck, a foreign bank that is underwritten by the Irish taxpayer is the first to fail.

    Well, how about the Ulster Bank? Owned by RBS which has a lot of exposure in the markets – and has had its share price under attack for months – down 20% at one stage last week. Although, if RBS goes down then things we have definitely gone off the map…

  • Mack

    Morgan Kelly tore into the deal in the Times today too. Making a lot of the same points as John East Belfast on some of the earlier threads on Slugger.

    http://www.irishtimes.com/newspaper/opinion/2008/1002/1222815457103.html

    I really hope he’s wrong and David McWilliams is right :-

    http://www.davidmcwilliams.ie/2008/10/01/lenihans-masterstroke-has-bought-us-time-to-sort-out-our-own-problems

    Time will tell.

  • Rory

    BBC Radio 4 News last evening reported that the Irish banks were receiving particularly heavy re-investment of funds from Northern Ireland. I have no ‘further and better particulars’. But I wish I did.

  • DK

    Any guesses as to what will happen when the economic climate improves and these funds start to be repatriated?

  • smcgiff

    Speaking of sovereignty.

    It seems NI is tied more to the Irish banking system than the UK. Darling’s concern about the guarantee was mostly regarding NI banks competing specifically with ROI banks.

    Seems obvious, but it takes something like this to highlight it.

  • Oilifear

    From the BBC –

    “… there were no obvious signs of savers flocking to banks such as the Allied Irish Bank in the UK.”

    If I remember correctly, the AIB’s operations in the UK are not covered by the plan because they are separate operations to the Ireland-based ones.

    “… a spokeswoman for the Post Office – where savings products are backed by the Bank of Ireland – said there had been an increase in customers since the Irish government’s announcement.”

    Whereas Bank of Ireland’s UK Post Office operation is covered by the plan.

    smcgiff – a noteworthy point.

    Dave! Quel surprise! So you think it’s the EU’s fault? Now that’s a turn up for the books. Sure, I suppose the words “EU”, “Ireland” and “poverty” are intimately related in everyone’s minds?

    “In the meantime, they may try to join the dots between cheap credit, the agency that set the rates at which it was proffered, rapid house price inflation, loss of sovereignty over monetary policy, and the devastating effects it has had on the Irish economy i.e. the EU’s ECB.”

    Because banks in the UK are doing so well as to not allow lines to be drawn outside of the same dots that you blame for everything? Or in Denmark? Or in Iceland?