Category: Asset 4Editorial

U.S. and EU an ocean apart on bailouts

May 23, 2012

By Staff Reporter

Up goes a sign urging a "no" vote on May 31.

A great many things distinguish Europeans from Americans. Europeans are mad for soccer. Americans merely tolerate it. The metric system seems to suit Europeans just fine. Americans have proved stubbornly opposed to it.

And then there’s bailouts.

On this side of the Atlantic, the word bailout is a political cudgel. Republicans bash Democrats for bailing out the auto companies, Fannie Mae, and Freddy Mac. Democrats bash Republicans for bailing out the big banks, financial firms, and insurance companies.

It’s hypocritical, sure, but American politicians support bailouts only reluctantly. It just won’t do to seem too enthusiastic about bailouts. It’s the kiss of death.

Not so in Europe, apparently.

The European Union’s fiscal compact obliges members to significantly increase coordination of their economic policies. Put another way, countries that ratify the treaty will give up some serious control over their own finances.

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As anyone with a memory that stretches back to the pre-9/11 optimism about European expansion remembers, unlike in most EU countries, the Irish constitution requires the public to ratify a treaty of this sort.

And that’s just what’s going to happen. Prime Minister Enda Kenny announced on February 28 that a referendum would be held on the fiscal compact treaty. And that referendum will take place just a few days from now, on May 31.

So what in the world do bailouts have to do without it you ask?

The drafters of this compact remembered the initial Irish rejection of the Treaty of Nice in 2001. So they inserted a big fat carrot into this one: only those who sign on the dotted line will be eligible for future bailouts. It’s an Irish rabbit they want to catch.

According to The Wall Street Journal’s Eamon Quinn, rejection of the treaty “would deny the Irish government access to financial help from the bloc’s new and permanent bailout fund, the European Stability Mechanism.”

A permanent bailout fund? You wouldn’t want to miss out on that, now would you? Irish politicians are already lining up to sell the public on the virtues of future bailouts.

“I know that some people are saying that this treaty enshrines austerity,” Transport Minister Leo Varadkar told the press.

“Actually, if we don’t adopt this treaty there is a risk that austerity may have to be faster, quicker, and deeper in order to ensure that we never have to avail of the ESM.”

It’s a curious approach toward economic governance: If we don’t give in to peer pressure and surrender our sovereignty to the European Union, we may actually have to clean up our own mess next time.

It goes without saying, of course, that future bailouts would come with ever more restrictive conditions, tying Ireland ever more closely to a centralized European economic program.

Actually, it should go without saying, but maybe it doesn’t. Maybe what seems obvious to an American like me, isn’t at all obvious to a European.

Perhaps it is a uniquely American belief that you should accept responsibility for the risks you take. You win some, you lose some. Or so the saying goes. If you win, you reap the rewards. If you lose, don’t expect anyone else to pick up the tab.

Of course, it doesn’t always work that way in America, hence the animosity between the parties on the subject of bailouts. However, we at least agree on the principle: bailouts are not a healthy thing. Necessary, sometimes, perhaps. To be avoided if at all possible.

Yet in Ireland, since the announcement of the referendum, the peer pressure to ratify the treaty has steadily intensified. We don’t want to embarrass ourselves again, backer of a “yes” vote say. We don’t want to be the only one at the party who says “no” to the good stuff going around. What will we look like then?

It’s hard for me to imagine that a nation such as Ireland, which has experienced phenomenal cultural and economic transformation in the last two decades, would want to link its economic future ever more closely to a declining and desperate Europe.

And to do so like an addict suffering withdrawal, begging for more and more bailouts from Brussels, is simply beyond the beyonds.



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