Even the most ardent Irish Europhile must recoil when they recall the brutal application of power by then ECB president, Jean-Claude Trichet, who, in March 2011, warned Finance Minister Michael Noonan that “a bomb would go off in Dublin” if he, as any rational person would have, imposed losses on senior bondholders — the financiers whose gambling all but made our banking crisis inevitable.
Mr Noonan told the 2015 banking inquiry his position was clear and that burning bondholders would have been better for our economy. However, after Mr Trichet’s ultimatum, that option was unavailable. At that time, he suggested the bailout would cost up to €35bn, but late last year, the Comptroller & Auditor General put that bill at €41.7bn. The C&AG said it adds €1.3bn to annual debt-servicing costs. It is a real imposition and shows how vulnerable we are in the absence of peer solidarity. Mr Trichet’s position undermined Irish trust and faith in the EU in an unprecedented way.
Mr Trichet’s successor, Christine Lagarde, will soon face a similar situation, but on a very different scale. It is unlikely that a “bomb” threat would have had the same impact in Rome or Madrid as it did in Dublin. It is certain, though, that huge EU solidarity and ECB support will define the immediate future of Spain and Italy and, ultimately, the future of the European project. The depth of that solidarity is uncertain. When Italy’s ordeal passes, it will, like all of us, face a huge economic challenge. That challenge is made all the more difficult, as it carries one of the eurozone’s heaviest national debts. Without robust support from eurozone peers, its capacity to borrow will hardly be equal to its need.
Italy was one of the EU’s most enthusiastically Europhile nations, but now it is one of the most Eurosceptic. A poll last month found 88% of Italians believed Europe was not supporting Italy. A frightening 67% said EU membership was a disadvantage. The EU will survive Britain’s departure, but should Italy follow, the project would be fatally damaged.
Economic implosion is not the only threat. Viktor Orbán has, by seizing sweeping powers, turned Hungary into a dictatorship. That country could not be admitted to the EU today. Yet Orbán’s Fidesz party is tolerated — even if suspended — as a member of the European People’s Party (EPP), the umbrella group it shares with Fine Gael.
As ever, Germany’s position is decisive. If the eurozone is to recover, Italy and others must be free to borrow, using the financial heft of northern states. Spain’s prime minister, Pedro Sánchez, has said Europe must build a “wartime economy” through a new EU Marshall plan. That may well cost close to €1tn and will stand or fall on a simple question: will Germany set aside its default economic conservatism or will it put institutions, especially German and Dutch institutions, before European solidarity?
The outcome of yesterday’s meeting of eurozone ministers suggests that the battle is ongoing, but that northern countries are far more like Trichet than Noonan and that, even at this moment of great crisis, options are seen through the prism of a balance sheet — which raises questions even more challenging than coronavirus.