EU economies in crisis - Unity of purpose is essential

A LITTLE over a week ago, when the banks’ terrible liabilities were published, there was a small hint at finality, a suggestion flickered that reaching this understanding was part of an endgame rather than another milestone along the road to some place utterly chaotic.

If those figures did anything to encourage confidence, events of the last 24 hours have undermined whatever optimism was generated in the last week.

Almost inevitably, Portugal has joined Ireland and Greece in the Kindness of Strangers Club and undermined confidence in the euro. Portugal’s difficulties, just like our own, are another hammer-blow to the single currency project and will make it far more difficult for us — or anyone else — to get more tolerable terms for our EU/IMF bailout package.

The immediate concerns centre on a frightening prospect — eurozone contagion. If Portugal’s admission spooks the financial markets the next weakest economy will be pushed closer to the kind of capitulation that costs a country its economic sovereignty. Despite yesterday’s increase in interest rates and new inflation figures this is the single biggest issue facing the EU because that country is Portugal’s neighbour Spain.

As Spain’s economy and public debts are greater than those of Ireland, Greece and Portugal combined, its capitulation would test the euro project to its very foundations. We can take a smidgen of comfort in the fact that Portugal’s situation has been anticipated for nearly a year and the markets have adjusted accordingly. Nevertheless a threatening sense of momentum grows all around us.

Despite the great importance of all of this, Portugal’s difficulties will seem academic to an estimated 790,000 Irish mortgage holders, 80% of whom will have to pay more to service their home loans after yesterday’s announcement that the ECB has raised interest rates by a quarter point to 1.25% in a move to curb eurozone inflation. This is another blow to so many young families struggling with pay cuts, unemployment and negative equity. The difficulties faced by this group are so great that it is time to consider measures that will help them through the worst of the crisis.

The rate increase is the first of several expected in the next year or so. Already Bank of Ireland and ICS Building Society have announced they will increase fixed-rate mortgages by between 0.7% and 1.3% from today. Tracker mortgages will rise in line with the ECB hike. If all of this was not challenging enough, yesterday’s figures which recorded that consumer prices rose 3% in the year to March will do little to add to the gaiety of the nation.

None of this is cheering and there seems to be so little we can do to immediately turn things around. We must have confidence though that we will and one of the things we could do is give our new Government some space to see what they can do with the appalling situation they inherited. Some of the foolishness coming from Fianna Fáil and Sinn Féin in recent days is so out of kilter with the scale of the crisis facing us all as to be utterly counterproductive.

We are in a dark place and the Punch-and-Judy grandstanding of recent days will do nothing to get us out of it. Is it too much to hope that a unity of purpose and a sense of co-operation might prevail in the short term at the very least?