Johnny Fallon

Irish Political Commentator

Archive for the tag “Cyprus”

EU needs to wake up to reality

The EU finds itself in the middle of another fine mess this weekend. The argument is undoubtedly financial but the problem is very much political. The situation in Cyprus is being watched closely elsewhere and that is the last thing the EU wanted. This was a quick smash and grab effort. Cyprus is a very tiny economy, it is in a very unique position and major powers wanted to deal with it and move along quickly. Let’s cut through the spin and the rhetoric, the EU has ceased to be a union of equal partners. It is now a league with several different divisions. The treatment you get is based upon what league you are in.

If France needed a bailout tomorrow it would be treated far better than Ireland or Portugal, and the EU wisely did not even contemplate attempting in Ireland or Portugal what it has done in Cyprus. This was a political decision, one where they believed they could contain the hit simply because Cyprus does not have any form of economy that can be cut or taxed to raise the money it needs. It seemed simple, take the money from savings as it’s the only way it will probably ever be repaid and it deals with it quickly. That was the theory. It’s proved a lot more complex.

There can be little doubt that this is a game of poker now. Cyprus has decided to play hardball and the Germans do not believe in being a charity. While Russia lurks in the background the Germans are quite confident that the Cypriots will find that Russia wants its money back just as much as anyone else and there will be a high price to pay for any loan. Germany has a decision to make, it can accept a hit financially on Cyprus and then open the door for hits from all other countries or it can cut Cyprus loose, and use any misfortune the country suffers after that, as a lesson to others.

All of this has one glaring problem. The EU simply does not work anymore. It is financially broken. Economically it is holed below the water line and the current policy is to get all hands on deck to scoop the water out and keep the ship afloat. At some point however we all know that if the ship is to survive someone is going to have to fix the hole. Unless something is done to boost economic activity in the EU then a slow sinking is inevitable. An intergovernmental conference and a new treaty are on the way if the EU is to have any future. Britain has already started this process with its efforts to hold a referendum on membership based on a renegotiation of its position in the EU. The first problem is of course that the EU needs to decide what it is to become, a Union of equal partner nations, controlled and managed by democratic governments working together, or a Federal state controlled by centralised systems and some directly elected representatives.

Decisive and real action is needed to address the issue with Ireland, Spain, Italy and Portugal. These countries need to be put on a footing where they can start to contribute again rather than adding to the drag. Everybody knows this. Deep down the EU knows this. At the heart of the German government they know it too. The problem is that to solve the situation is going to mean a financial hit. Things can’t move again unless there is some sort of new start. Germany needs the EU, it needs the Euro and it relies on this. However it is Germany that will take the financial hit in order to give the new start. Politically that’s a problem. In Ireland as in other countries we are used to hearing that the man in the street says ‘I didn’t create this mess, it’s not my fault and I should not have to pay for it’. That argument is no different in Germany. As far as the man in the street is concerned, they run a tight ship, have a strong economy and they see no reason why they should have to face any kind of financial hit just to help other countries. Arguments about why Germany benefits from the Euro, from the EU or from trade are lost on the electorate. This is at the heart of the political problem. No matter how obvious the answers are to those dealing with the issue they know they cannot take these decisions and win elections.

It’s a funny old world. Angela Merkel was very fond of telling political leaders in Greece and in Ireland about how they needed to put their country before their party. So successful was the mantra that Irish politicians could not wait to sign their own political death warrants in order to ‘save’ their country even when the deal on offer was questionable. Politicians became so convinced that the unpopular thing must be the right thing that they had to act before anyone else got a say. Now there may be merit in that, but only if everyone is playing by the same rules. Angela Merkel has shown time and time again that her party comes before, not only her country, but the entire EU. She will not accept an electoral meltdown in order to ‘do the right thing’. Europe is therefore left on hiatus because of political cowardice. People are suffering because at a political level we are playing chess and delaying inevitable decisions.

We are not innocent in this regard. Unlike the EU of the late ‘80s and early ‘90s there are no partnerships or efforts to form negotiation blocs. Everybody is simply vying to be close to Germany. The idea of countries coming together to start a process where a real solution can be tabled scares the life out of the politicians because it could put Germany off side. So we keep waiting for some kind of Armageddon that may force Germany’s hand without us having to say anything. Its not that the Germans are the bad guys here, it’s simply that they have convinced everyone else how to put their own selfish interests aside while at the same time are unwilling to face that point themselves. If Germany wants the EU and the Euro, then there will be a price to pay for getting it. For the rest of the EU it’s time to start asking where the power lies and where the hell we are actually going.


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