Something's gotta give... (2)

Saving the euro

Ireland’s woes are largely of its own making but German bungling has made matters worse

"(...)Both sides are being disingenuous (see article). The Irish are right that they have enough money to last until the middle of next year (the treasury has around €20 billion of cash squirrelled away). But they could face bank runs long before then.(...)

On the other hand, the Irish are also right to be suspicious of intentions in Brussels and Berlin. Too much of the EU’s motivation seems to be to punish Ireland for its Anglo-Saxon ways—especially its highly competitive 12.5% tax rate on corporate profits, which helps it attract foreign firms. Raising this would be madness. Ireland is planning budget cuts for next year of 3.8% of GDP; any economy would struggle against that headwind. But its hopes are anchored in those new foreign arrivals.

If only both sides gave up posturing, they would agree that the European rescue funds should be used to stabilise Ireland’s banks, insisting only on certain budget targets in return. Such a deal should satisfy Ireland’s euro-zone partners, which want an end to the uncertainty, and the European Central Bank (ECB), on which Ireland’s banks have become overly reliant for funding. It would also be wise to offer a similar deal to Portugal. Its banks are dependent on ECB support, and it too is in the bond markets’ sights.(...)

Despite the troubles on its periphery, the public debt of the euro zone as a whole is not notably high by rich-country standards. The real problems are the absence of a credible plan to deal with errant countries (as the Germans have recognised), the structural imbalances between Germany and the less competitive southern members and, most of all, the miserable growth prospects for those poorer, weaker southerners, made worse by their fiscal retrenchment. Denied the possibility of devaluation, slow-growing countries like Portugal and now Spain should be looking for structural reforms that can reduce their labour costs, enhance enterprise, stimulate competition and regain competitiveness.(...)"

                                                 in The Economist, 18 de Novembro de 2010

*imagem retirada da edição on-line do The Economist