In my last article I spoke of the possibility of a gamechanger. This was in the context of Ireland’s bank debt being taken over by the European Stability Mechanism (E.S.M.) and also in the context of the then upcoming Connacht final. During those past three weeks there has been little sign of any gamechangers. Sligo’s trip to Hyde Park ended in defeat at the hands of Mayo, but all is not lost. As I write this, big preparations are underway for a second trip to Hyde Park to meet the Lilywhites, Kildare, with the aim of getting “backdoor” access to the quarter finals of the Championship. Gamechangers are still possible, hopes are still high and the black and white still flutters in the wind.
You, the reader have as always the advantage. When you read this you will either be putting the well worn black and white flags back on their shelf in the shed or stuffing them into a plastic bag under the stairs or just maybe you will be flying them proudly anticipating the next round.
I know I promised at the beginning of the year to be realistic optimistic, but it’s not easy when the edifice itself is beginning to crumble, when uncertainty is rife and when confidence continues to fall. The “gamechanger” as recently quoted by our Tánaiste Eamon Gilmore is looking more and more like just another one of the series of failed initiatives that have been trumpeted loudly over recent months and years.
The relentless rise in the cost of Spanish borrowing continues, despite the approval of a €100 billion bailout of its bonds. Despite what was seen as a significant move on behalf of the EU, Spain’s troubles mount. Madrid needs to refinance itself to the tune of approximately €55 billion this year.
Long term loans of 10 years or more are costing in excess of 7% per annum and no country can afford that. Short term or two year money is costing 6.5% per annum and while technically that is seen as sustainable, in reality it is not. The EU could, at a push finance Madrid if it had to. The funding mechanisms are already in place.
But the Mediterranean is a troubled area and Italy looks shaky. Its long term borrowing costs are close to the 7% high water mark, while for now its short term borrowing costs are just about still manageable. Italy’s needs are of a different magnitude to Spain. It is one of the most indebted countries in the world and it’s required borrowings over this year and next year would swamp the EU rescue funds.
Moving further east we arrive in Greece following hard on the footsteps of the EU- IMF troika who are back in town to check progress on the bailout terms. The news is not good.
I have said before ‘Greece can’t pay and Greece won’t pay’. Their level of debt is unsustainable and their bailout terms are unattainable - an impossible situation. Over the last twelve months, there were whispers and conversations behind closed doors about a GREXIT (a Greek exit from the Euro) – now those comments are appearing all over the media. Senior figures in Germany and elsewhere are not only speculating about the possibility of a GREXIT but are already factoring it into their calculations.
In my view Greece will most likely leave the Euro or be pushed – I am not sure which. That is of course if the Euro lasts that long. Nothing is certain but I think the currency will survive. The dislocation of the Global economy following an implosion of the Euro would be incalculable and for that reason alone its chances of survival are better than 50:50.
It’s not only southern Europe that is feeling the pain. Moody’s, one of the main credit rating agencies has signalled that Germany’s triple A rating is in doubt. The German finance Minister Wolfgang Schaeuble has dismissed the matter stating that Germany is an anchor of stability within the Eurozone. That may well be but the chill winds of contagion are blowing north, whether they carry the virus or not remains to be seen.
If it’s any consolation (and it isn’t really) its not just the Eurozone that is suffering economically. Our nearest neighbour that can print its currency at will is also feeling the impact of the crisis. GDP has fallen below zero and recovery is not yet in sight. It is interesting to note, the European country that had spent the biggest amount in bailing out its banks was not Greece, Spain or Ireland but the United Kingdom. Yes our friends across the water have been quietly pouring money into their banks. There is little or no hullabaloo about it because the U.K. can print as much sterling as it thinks it needs, it simply cranks up the printing presses and crisp £1 notes, £5 notes, £10 notes etc. appear. It’s a little bit like making something out of nothing but even that neat little trick is not solving their problems.
My final port of call is Ireland. A well known economist said recently that the economic engine is still running in Ireland. Unlike Spain, Italy and Greece we have a functioning economy. That’s still just about true and I suppose gives us a glimpse of what we might hope for. Another glimpse was provided today (Friday 27th August) when the sale of Irish Government bonds was better than expected. Ireland raised €5.2 billion through the sale of new bonds and a debt swap for bonds due in 2013 and 2014. Not exactly earth shattering, but steady progress in the current climate.
Yes there are still mountains to climb, but one at a time. For those of you who play poker I might describe it as the equivalent of holding 2 small pair. If 25 is your game, then it’s a little like being dealt the Ace of Hearts or if Snakes and Ladders is your preference, it’s like rolling the dice and getting a 6. You still have to avoid the snakes and climb a few ladders, but at least you are on your way.