Tuesday, December 7, 2010

The choice is made: banks over people

There is a press analyst in Brussels who has stopped explaining the meaning of contagion to his bosses. The word, not new, but unsurprisingly encountering a massive upswing in popularity at the moment, describes the knock-on effect of failing economies; first Greece, then Ireland, then Portugal, Spain, Italy and the rest of the Eurozone. It's the old domino theory, except with capitalism in place of communism, the single currency in place of democracy.

It is possible that in time contagion will become a buzzword, a fad for a specific era; but right now everyone is using it, it beefs up stories and gives apparent credence to economic analysis. It's like Glasnost and Perestroika during the tail-end of the Soviet Union, no story about the financial markets can resist using it, and its sudden ubiquity has meant that even non-native speakers have quickly grasped the meaning of this once-obscure word.

Contagion can be described variously. Most commonly, it is the communication of a disease, but can also be the medium through which a disease is transmitted , a harmful influence or the transmission of an idea; all of which can be applied with varying degrees of accuracy to banks and market speculation. The latter of which has become a popular parlour game, with Portugal odds-on favourite to go bust next, and the European Central Bank keen to steady the waters with thoughtful and calm, strategically-timed announcements.

With Spain confidently predicted to be 'too big to fail', second of the PIGS, Italy, is under scrutiny. Based on political instability,the country, it seems, is a prime target for economic meltdown. Likewise, according to some media commentators and based on a similar premise, is government-less Belgium. But despite its estimated 6% deficit, Belgium's financial problems are not based on extraneous pressures from banks, unlike Portugal or Ireland.

Banks are really what this is about; it's the reason for the Irish bailout and bilateral assistance from the UK (and non Eurozone countries Sweden and Denmark, who have also chipped in). The banks cannot be allowed to fail, if they do a catastrophe of Biblical proportions will be unleashed. But in doing this, the citizens are to suffer; society can crumble, but the banks must be steadfast. “The purpose of the external financial support is to return our economy to sustainable growth and to ensure that we have a properly functioning healthy banking system”, an Irish government statement read. They made the choice; of the total bailout fund, €35 billion will go towards bank recapitalisation.

The Irish Prime Minister, Brian Cowen, is confident that his government made the right choice; after all, by raiding the pension reserve fund and other domestic revenues, the bailout amounts to a mere €67.5 billion. Ireland, he assures us, is not so much under the EU-IMF yolk after all, and even Greece is envious of Ireland's 7-year payback terms at 5.8%. He now faces the people in a new year election.

The strange coalition of anti-government protesters, comprising of wounded, right-wing nationalists and a motley crew of left-wing agitators, is expecting big change. It looks like they will be disappointed. No future government can magic away the debts. The best, we are told by the parties in waiting, is a sensible approach to the future economy; which is not something that inflamed passions want to hear right now, but come election time, will probably be the byword that will quell fears of a civic meltdown. Whoever is perceived to be the most sensible will win the election, it is the analgesic for the age, the contagion from politicians to public.

CDonnelly@NEurope.eu

No comments:

Post a Comment