Spanish deal no magic bullet for Ireland after all

The debate on the implications for the Irish bailout is hotting up and is well covered in the Irish Times. Instead of setting a precedent for better terms, the paper argues that deal offered to Madrid actually reduces the chances of renegotiating it, and exposes the difference in treatment between large and small members of the eurozone. These arguments don’t seem entirely consistent and remain to be unpicked. If the Spanish bailout isn’t so different from the Irish, does of the size of the country matter?  Anyway, to go through the argument..

Fianna Fail and Sinn Fein ask the obvious question.  Deaglaun de Breadun gives the realpolitik answer that small countries like Ireland are bound to be treated differently than big countries like Spain.

The procedures in place now for a narrowly focused recapitalisation of the banks did not exist at the time of the Irish bailout, but there is an argument for Ireland to be allowed to negotiate a new deal in similar terms. The response of the Germans and their supporters would probably be to leave things as they are, on the basis that the current troika programme hasn’t got far to go and, “if it ain’t broke, don’t fix it”.

That won’t play very well with the hard-pressed Irish punters. But it seems that in EU affairs, size matters and Ireland is a small island off the continental shelf in comparison with the giant of the Iberian peninsula. Likewise, Cyprus is in line for an EU funding boost but will probably have to submit to a troika programme similar to our own.

But the main news story explains that there is less difference in the Spanish and Irish packages than might appear at first sight. And moreoever..

The European bailout of Spain will proceed without direct aid for the country’s banks, dealing a blow to Dublin’s campaign to ease the terms of the Irish bank rescue…

Emergency loans will be set aside for Spain’s banks and prime minister Mariano Rajoy will not be compelled to adopt policies in addition to the austerity programme already approved by EU ministers.

Adds   Even before the Spanish deal, Dan O’Brien the Irish Times Economics editor argued that a   re-negotiation of the Irish bailout was ” not on the cards” Back in  2010, everyone  was “making it up as they went along” and  contrary to legend, the terms were  not imposed from  outside.

The  Irish State has put approximately €65 billion into the banks, €45 billion of which was borrowed (the rest came from the National Pensions Reserve Fund). Total public debt stands at €170 billion. Even if the imposed €5 billion was retrospectively Europeanised in full, the impact would not be transformative. That is not for a moment to say that the Government should not continue to pursue the issue vigorously, but to do so on the basis of an exaggerated sense of grievance could be counterproductive. Better to appeal to others’ self-interest and/or wait patiently for an opportune moment to move.

All the same,  to a non specialist, this hardly sounds like a clinching argument for setting the bailout  terms in stone, if  a better way can be found to deal with  huge burden of debt imposed on the Irish people.

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  • Neville Bagnall

    Spain believes it can still fund its budget deficit in the markets.

    Therefore the loan only covers bank recapitalisation.
    However it is being given to the State, and not to the Banks.
    Hence – sovereign bailout, not bank bailout; but private sector not public sector.

    Ireland needed a bailout for both its public and private sector. And the price of the public sector bailout was the Troika programme.

    But it remains to be seen if Spain will be able to remain in the markets (witness the bond yields on Monday). If they aren’t, hello Troika.