Ireland’s premier Brian Cowen rules out rushing through emergency economic measures, as financial experts tell Channel 4 News that the Irish bailout could lead to more splits in the Eurozone.
Ireland’s Taoiseach Brian Cowen told members of the Irish parliament that he would not bring forward a streamlined bill of budgetary measures in advance of a full Budget, which is due on the 7 December.
It follows a call from Enda Kenny, leader of the opposition Fine Gael party, for the Budget to be brought forward in the guise of a “slimmed down bill of key essentials”, during a debate in the Irish parliament.
Mr Kenny’s comments – which he said were made “in the spirit of being constructive” – came after he accused Mr Cowen of hanging onto power.
“I don’t think this does anything to take Portugal and possibly Spain out of the firing line.” Peter Chatwell, Credit Agricole CIB
Ireland will publish its four year plan tomorrow, which is intended to shave 6bn euros off next year’s budget, and 15bn off the annual budget by 2014.
And Mr Cowen was spared a vote of no confidence from opposition parties after Fine Gael decided to instead promote a debate on keeping Ireland’s corporation tax at 12.5 per cent.
Sinn Fein has tabled a motion of no confidence, but with only four members of the Dail, Ireland’s lower house, they do not have any rights to force a debate.
Channel 4 News Economics Editor, Faisal Islam – who is in Dublin – said the Taioseach appeared to be “clinging on”, despite expecting a roasting from colleagues at a Fianna Fail party meeting tonight.
Mr Cowen had rung round opposition leaders, unsuccessfully seeking commitments that they would back the tough economic measures required by the IMF and EU under the terms of the planned bailout, but it was not clear what would happen against the increasingly febrile background.
Ireland’s bailout has prompted fears that other vulnerable European countries, such as Portugal, Spain and Italy will follow suit.
Portugal, next in capital markets’ firing line, said in a statement that Sunday’s agreement by EU finance ministers to grant Ireland the second euro zone bailout after Greece should restore investors’ trust in the single currency area.
“The fact that Ireland can have a significant aid plan alleviates concerns, reduces uncertainty and reinforces market confidence,” said the Portuguese Finance Minister Fernando Teixeira dos Santos.
Financial market experts said the Irish bailout might bring short-term relief but questioned whether it would prevent Portugal ultimately being forced so seek assistance.
“I don’t think this does anything to take Portugal and possibly Spain out of the firing line,” said Peter Chatwell, rate strategist at Credit Agricole CIB in London.
Unions have called a national strike across Portugal tomorrow in protest at the government’s planned austerity measures, including a five per cent cut in public sector pay, a freeze in public sector pensions and tax rises for everyone.
Our Business Correspondent, Siobhan Kennedy – who is in Lisbon – said the unions were seeking to bring the country to a standstill, with rail and airport workers among those on strike. “Thousands of workers – from teachers to health service workers – are expected to turn out on the streets tomorrow,” she said.
Italy, the eurozone’s third-largest economy, which has one of the world’s highest public debts, has weathered the financial crisis better than many of its European peers and has so far been spared the kind of market pounding seen in Greece, Spain, Portugal or Ireland.
As with Brian Cowen in Ireland, the Italian Prime Minister Silvio Berlusconi has low approval ratings and a confidence vote in parliament next month could force an early election.
But politicians in Italy are acutely aware of the danger of contagion and with worries over prospects for Ireland and Portugal flaring up, some analysts say that a prolonged political crisis could put Italy in the market spotlight.
Richard Welling, the Deputy Editorial Director of the Institute of Economic Affairs, told Channel 4 News that, as the third biggest economy in the eurozone, an Italian bailout would be a huge disaster.
While Italy’s debt is 10 times that of Ireland, its deficit equates to only 5 per cent of the Italian GDP.
But Mr Welling said that compared with Ireland, Italy has brought through fewer measures to solve its economic problems.
He predicted that Eurozone countries would “pull out all the stops” to save the Euro, but that some countries may be allowed to leave the 16 nation single currency area.
Tim Congdon of the consultancy International Monetary Research told Channel 4 News that the seeds of problems that Europe is experiencing now were sown when the European monetary integration project was first developed.
“They never sorted out this problem,” he said.
Congdon added that the Irish and Greek bail outs were a breach of the Maastricht Treaty which Germany and others had signed in 1992.
Peter Warburton of the consultancy Economic Perspectives told us the Irish bailout was like a “controlled explosion”.
He added: “Back in March or April there was a real chance of an uncontrolled explosion that could have potentially blown the whole currency system apart.”
Mr Warburton said there is now a tension between one camp which thinks that enough has been done to prevent further problems and another which thinks that crisis is contagious.
The real problems would come if Spain had to apply to the contingency fund established following the Greek bailout, he added.
Mr Warburton predicted that Spain will be protected from having to access this fund – but at a great cost.
“Its application would endanger the whole mechanism,” he warned.